David Kirby - Director, Investor Relations Manolo Marquez - Chairman & Chief Executive Officer Stephen Nolan - EVP & Chief Financial Officer.

Bill Nasgovitz - Heartland Funds David Sachs - Hocky Capital.

Good morning and welcome to the Fourth Quarter 2014 Earnings Conference Call. At this time all participants have been placed in a listen-only mode. After the speaker’s prepared remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I'll now turn the call over to David Kirby to begin. Please go ahead sir..

Thank you, operator, and good morning, everyone. Welcome to the Hudson Global Conference Call for the Fourth Quarter of 2014. Our call this morning will be led by Chairman and Chief Executive Officer Manolo Marquez; and Executive Vice President and Chief Financial Officer Stephen Nolan.

Please be advised that except for historical information, the statements made during the presentation constitute forward-looking statements under applicable securities laws. Such forward-looking statements involve certain risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements.

These risks are discussed in our Form-8K filed today and our other filings made with the SEC. 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 term such as EBITDA.

And EBITDA reconciliation is included in our earnings release and quarterly slides, both posted on our Web site, hudson.com. I encourage you to access these materials at this time. They are featured on the Web site under future documents and will serve as a helpful reference guides during our speakers' remarks.

With that, I’ll turn the call over to Manolo..

Thank you, David. Thank you all for joining us on our 2014 full year and fourth quarter earnings call. Our fourth quarter 2014 results showed increased traction in Hudson's turnaround. Revenue on gross margin were $137 million and $53 million respectively up 3% and 6% in constant currency.

This was our fourth quarter consecutive quarter of revenue and gross margin growth on a constant currency basis. Our adjusted EBITDA for the quarter was the loss of $2.4 million near the mid range of our guidance, which compares to a loss of $2 million in the fourth quarter of 2013.

In the last quarter of 2014 we carried $0.5 million of stranded cost in North America tied to the divestiture of our eDiscovery business as well as performance based bonus accruals for the managers who met their annual targets.

Our full year gross margin from continuing operations grew 7% in constant currency, our adjusted EBITDA for the year was a loss of $7.5 million an improvement of $7 million for 2013 or $8.4 million excluding our AlixPartners engagement and proxy contest cost.

In 2014 we partially benefited from the savings associated with a restructuring program we signed with AlixPartners, which we have estimated at an annualized minimum of $12 million. Our fourth quarter cash flow from operations was a positive $2.9 million and we finished 2014 with $34 million in net cash or about $1 per share.

During 2014 we continued the strategic review of our operations concentrating our effort in the areas where our potential to win profitable market share is greatest. We've successfully divested our eDiscovery business for $23 million in cash and seize direct operations in our loss making market in Sweden.

In parallel we deployed a focused investment program in our front office in the areas where we have a specialized capability and tier opportunities to scale our business. Our sales and delivery staff grew by a net full year equivalent of 14% with an investment in related compensation of $10.5 million.

The productivity of our newer staff has increased gradually throughout the year and will continue to improve during 2015. Our work to rationalize our operating platform allowed us to reduce our support and administrative cost by an additional $2.7 million, our occupancy costs by $2 million, and our technology cost by $1 million for the year.

In 2014 our Board of Directors approved a plan to enhance corporate governance and strengthen its stockholder rights as well amending our rights agreement to protect our approximately $300 million of U.S. net operating losses. This proposed covenant changes will be presented for approval at our 2015 annual meeting of stockholders.

Our efforts have started to translate into meaningful growth in many of our core businesses during 2014. Our global RPO gross margin grew by 14% fueled by 19% growth in Asia Pacific where we continued to demonstrate a market leadership position and 47% growth in Americas.

Our talent management gross margin grew by 12% driven by 28% growth in Australia and 14% in Belgium. Two markets where we enjoy a clear leadership position in this space. RPO and talent management combined now represents slightly more than one-third of our gross margin.

Our permanent recruitment business which represents 40% of our gross margin grew by 14% with the strong performances in Australia, China and Europe growing by 24%, 30% and 12% respectively. Our temporary recruitment business which represents approximately one-fourth of our gross margin is proving harder to scale and sales by 8% in 2014.

While our work is not yet done, we have settled Hudson transformation hotspot in the inflection point. We have hired outstanding talent to join our company from industry leading peers. We have changed the culture of the company bringing the processes, operating discipline and homogeneous business and practices required by a truly global business.

We have reviewed our portfolio and implemented a clearly focused investment strategy in our core business.

We have rationalized our cost base and deployed a more efficient organizational model and we have made substantial progress, in all of that dealing with the transformation of the highly complex business in an adverse international economic environment.

Looking forward we are on track executing the plan outlined to you in our May 2014 Investor Presentation which you can find on our Web site.

In 2015 we expect to continue growing our gross margin in our core markets, deliver full year profitability at the adjusted EBITDA level and demonstrate a clear path to achieve a return on gross margin within our peer range in 2016.

We have confidence, we can achieve these objectives for three main reasons; first, the accelerating growth that many of our core businesses evidenced in 2014 particularly in the areas where we have made most of our investments; second, the savings that our restructuring efforts have wanted in our support cost and real-estate platforms; and third, our firm decision to bring a sharp focus on our investments in the area that can demonstrate profitable growth and divest or exit non-core assets.

Even as our business fundamental continues to improve the international economic scenario remains uncertain. And as we cross our breakeven point our profitability is sensitive to top line variations. Notwithstanding these as said our efforts will remain centered on delivering full year profitability at the adjusted EBITDA level.

And we will give you a regular account on our progress every quarter as well as an update on our 2015 trend.

Today we feel that Europe will be our primary challenge in addition to temporary recruitment an important priority in 2015 is to restore growth in the UK where a new management team is deeply committed to ensure Hudson profits from the opportunities offered by these large recruitment markets. This past year was important for Hudson in many ways.

In 2014 we have delivered four consecutive quarters of running revenue and gross margin growth in constant currency, reduced our support occupancy and technology costs by an additional $5.7 million for the year, successfully divested eDiscovery to bring more focus on our most profitable growth opportunities.

Invested in consultant headcount to continue driving further growth in 2015.

Improved adjusted EBITDA by $7 million from the prior years, delivered positive cash flow from operations in the fourth quarter, ended the year with $34 million in cash and set the base to continue growing our gross margin in our core markets and achieve full year profitability at the adjusted EBITDA level in 2015.

We are encouraged by this improvement and we will continue working hard in 2015 to realize the full value of the company. Stephen will now provide more detail on our fourth quarter performance and outlook..

Thanks Manolo and good morning everyone. For the fourth quarter group revenue came in at $137 million up 3% year-over-year in constant currency led by 13% growth in Asia-Pac. RPO revenue grew 28%, permanent recruitment was up 20% while talent management was flat and our temp contracting business fell 5%.

Gross margin was $53 million up 6% year-over-year in constant currency led by 21% growth in Asia-Pacific. RPO gross margin grew 10% as we saw a higher mix of contracting within that business. Perm Recruitment grew 20% while temp contracting fell 6% mainly weakness in the UK and U.S.

SG&A costs were $56 million 7% higher than last year driven by 14% increase in fee earner headcount, again mainly Asia-Pacific. The related compensation costs were up $3 million in constant currency. Savings and real-estate and other G&A costs were offset by stranded costs in the U.S.

related to the sale of eDiscovery as we supported our buyers to our transitional services agreements. Q4 adjusted EBITDA was $2.4 million loss compared to a $2 million loss last year. Turning to regional and country performance in the fourth quarter. Americas Q4 gross margin grew 8% compared to last year.

RPO delivered another strong performance with a 46% year-over-year increase in gross margin. Our U.S. IT business had tough quarter with gross margin down 19% due mainly to the implementation of tenure rules of one of our largest clients. Adjusted EBITDA was $1.4 million lower than last year due to the weaker IT results and higher costs.

Asia Pacific had a strong fourth quarter with year-over-year growth in revenue and gross margin of 13% and 21% respectively in constant currency. Gross margin improvement was driven by growth in permanent recruitments and RPO primarily in Australia and China.

Adjusted EBITDA in Q4 was $1.5 million better than last year due to better gross margin mix and cost savings. In the fourth quarter Australia gross margin grew 16% led by strong Perm results. China gross margin grew 52% led by Perm and RPO.

Recent public data from our competitors in this market show we're continuing to regain market share in this important region. In Europe Q4 results were mix, the gross margin is up 85%. Adjusted EBITDA was $1 million better than constant currency due to cost savings in real-estate and other G&A costs.

UK revenue was 7% below last year while gross margin fell 11% due to weaker results in RPO and recruitment. RPO gross margin fell 31% year-over-year as we saw lower volume at one-time compared to a very strong finish last year. Year-over-year recruitments gross margin fell 5% in a growing market.

I will speak more about UK later but we know we need to improve our response to shifting client behavior particularly in the financial services sector. Our second largest market in Europe, Belgium grew gross margin 10% in constant currency, a strong growth in permanent recruitment and talent management.

In continent Europe overall gross margin was up 1% in constant currency a softer demand in France and Netherlands offset Belgium's growth.

Turning to the full year results, 2014 full year revenue was $581 million, up 4% from 2013 on constant currency; RPO grew 59% from the recruitment on talent management were both up 14% while our temp contracting business fell 8%.

Gross margin was $223 million up 7% from last year, RPO and permanent recruitment both grew 14%, talent management was up 12%, while temp contracting fell 8%. SG&A costs were $230 million, 4% higher than last year driven by the higher fee earner compensation cost plus the proxy Alix cost offset by lower support real-estate and other G&A.

Adjusted EBITDA was a loss of 7.5 million, an improvement of $7 million from 2013. In the region Americas revenue fell 3% as a 51% growth in RPO was offset by 14% lower temp contracting. Gross margin grew 11% with RPO growth of 47% more than offsetting weaker recruitment results.

Full year adjusted EBITDA was $1.4 million positive compared to $2.3 million last year with improving profitability in RPO offset by weaker IT results and higher relative costs what is now a smaller business.

Asia-Pac revenue and gross margin grew 11% full year while strong growth in RPO, talent management and permanent recruitment was somewhat offset by lower temp contracting. Full year adjusted EBITDA was $1.9 million a $3.4 million improvement from last year.

In Europe full year UK revenue fell 4% the growth in Perm being offset by lower temp contracting. Full year gross margin was up 1% of the Perm growth of 19% was offset by weak results in RPO and temp contracting. Continent Europe’s revenue grew 6% in constant currency with growth in Perm and talent management, gross margin was up 5%.

Europe’s adjusted EBITDA grew by $5 million year-over-year driven by Belgium and France. Here are some additional data points in the fourth quarter. We incurred $1.8 million restructuring charges in continuing operations mostly severance cost in Europe and our corporate center.

Q4 results included $400,000 of stock compensation compared to 100,000 a year ago for the year as stock based comp was 1.3 million versus 2.1 million in 2013.

Our Q4 tax provision was a net $200,000 credit, when you add the continuing and discontinued operations pieces which compares to a $3.8 million expense a year ago which related to a valuation reserve in Australia. We ended the quarter with $34 million in cash and $24 million of available borrowings totaling 58 million in liquidity.

We have no credit facility borrowings at quarter end paying down $8 million in the quarter. DSO at quarter was 43 days down from 45 days in September and down from 44 days a year ago. Capital expenditure for the year was $5.3 million which included 2.1 million relating to landlord funded leasehold improvements.

Looking to 2015 we expect approximately $3 million, $4 million of capital expenditures this year. Looking to Q1 we expect our international business will be impacted by weaker currency trends. Our prevailing exchanges rates we expect a revenue range of between $115 million and $125 million.

Our guidance assumes an average exchange rate of $152 to sterling, $113 to euro and $0.78 to the Australian dollar. Reported Q1 2014 revenue was $144 million which translates to $129 million at our estimated rates of Q1 2015.

So our revenue outlook is down 3% to 11% from prior year in constant currency mainly impacted by the softer temp contracting in the UK. Our outlook for gross margin is approximately flat to slightly down compared to prior year on a constant currency basis.

Recently we expect Asia Pacific revenue on adjusted EBITDA will grow year-over-year in constant currency. Americas revenue will be lower than last year due to lower trading in our IT business somewhat offset by continued growth RPO. Gross margin should be ahead of last year due to the mix of higher margin RPO business.

Adjusted EBITDA will be below 2014 due to lower client activity in the IT business. In Europe revenue and adjusted EBITDA will lag to prior year. UK, the very strong first half in 2014 but has weakened in recent months after disappointing finish in the fourth quarter our recruitment business has started slowly in 2015.

Manolo and I are actively engaged with Alix [bill] and the UK management team on implementing the investments and disciplined execution needed to get our UK business back on track to profitable growth. I am happy to report that we recently won two new RPO deals in the UK.

The rest of Europe is expected to be flat slightly down compared to Q1 2014 in constant currency as weaker conditions in France should be offset by continued good performances in Belgium and Spain. Overall for Q1 we expect an adjusted EBITDA loss between $2 million and $4 million which compares to $2 million loss in Q1, 2014.

Despite our Q1 outlook we’re committed to achieving positive adjusted EBITDA in 2015 and believe the tracks that we’ve shown in 2014 across our business and in our core markets provide the roadmap to achieve this important goal. Maria, please open the line for Q&A..

Thank you. [Operator Instructions]. Our first question comes from the line of Bill Nasgovitz of Heartland Funds..

So did I hear correctly that for the year you expect slightly down revenue and perhaps just fairly positive adjusted EBITDA for the year?.

We didn’t give any guidance on revenue, but yes, you hear correctly we expect positive adjusted EBITDA for the year..

And what is your expectation in terms of revenue?.

We have not made any remark about revenue at this moment, as you know we do quarterly guidance, we are not at this moment going to give any guidance on the annual revenue..

Can you repeat the NOL, what was that amount?.

$300 million in the U.S..

Phenomenal number..

Yes..

[Operator Instruction]. We do have a question from David Sachs of Hocky Capital..

Could you address the benefit in Q4 and perhaps in Q1 of any of the savings from the AlixPartners cost savings measures? Have we started to see the benefits of that at this point or in Q1?.

David its Stephen. Yes we're seeing some benefits particularly in Asia-Pac I would say were some of the actions we took occurred probably more Q3 and early Q4. Some of the actions in Europe quite a bit part of it's -- the way the markets work there. So we saw probably 1 million to 2 million in Q4 I would say.

And as we have now taken some actions as you know at the end of the year we'll expect that number to increase in Q1 particularly as some of the cooperate savings come through..

You've mentioned in the script that you had added in terms of consulting overhead which is 10.4 million..

Yes..

So can you explain is that incremental salaries from the addition new hires. And then what the timeline is for productivity from those people and then how should we determine whether that’s been a successful investment or not..

Well most of the investment has been in Asia Pacific and started probably really ramping up in Q2 last year. That is the kind the change year-over-year of that line that we captured our fee earner our compensation cost. A part of that would be just higher base cost and also higher than variable comps tie to growing the gross margin.

When you look at the Asia-Pacific growth I think in the fourth quarter you start to see now some that is obviously attributed to having more fleet on the street, more scale, more focus.

So I think it's probably six month, six to nine months maybe before we start to see goodness, again it depends how -- what the hiring profile is but I think we're comfortable. I think we now have some work to do in the UK and that probably won't be the same extent as in Asia-Pac. But we do need to do some work there along similar lines..

So Manolo in his comments mentioned that the company's path could have been a clear path to reach our peers in 2016 in terms of adjusted EBITDA margin.

Who are our peers if there are such a thing and what are we talking about in terms of a range of margins?.

Companies that we look are Robert Walters and Michael Page of those companies the one that has more similar scale that we do is Robert Walters. And what we say the rate of our peers rather give a number is because we don’t know what the year might be.

I mean if it’s a great year and the economy recovers and in Europe we'll have an upward cycle, we would -- looking forward to benefit from that as well as they would and if not we will say more on their current trading, I think the last time we saw at Robert Walters, Stephen was approximately 6$ to 8%..

Mid single-digit..

I'm sorry mid single digit..

So we'll be going from a essentially a breakeven run rate as we exit 2015 to a goal of achieving something between 6% and 8% that would be a 2016 exit rate if the world holds together as you see it today..

As we see it today..

And to get there we need revenue growth or is, this coming from additional expense savings indentified..

It's becoming from those three things that I said before in my script is additional growth. And it's also the fact that we will be continuing to bring sharp focus to our portfolio in those three actions..

And I guess the benefit as well from the mix change, so you've got RPO and talent management which higher gross margin this is growing.

Can you give us some sense of the size for today of the RPO business in revenue gross margin and what kind of contribution margin that business had in 2014? A sense of the backlog in that business in some reason why we should be optimistic that has some further growth potential..

So in 2014 the revenue of our RPO business was $90 million. The gross margin was $40 million and that is 16% of our global revenue and 18% of our global gross margin..

On slide 12 David you actually have the breakout of our services split, so again talent management was about $40 million in revenue last year and 36 million gross margins give or take.

So I think you’re right the mix will definitely help as we go forward with our areas that we’re focusing on and the RPO business for sure we continues to win deals sometimes they are bit slower from the win to when they turn into revenues then we would like but we’re continuing to win new business in Asia-Pac and we just got, we got ourselves back on track in the UK after some customers losses last year.

And U.S. we’ve invested pretty substantially in RPO and now drive the business there. And again you’ve seen some of the very strong growth. Obviously some of the rates may mitigate as you like comparable history, but that’s where for sure that 90 million we’re focused on growing.

And again the issue there can be as well as the mix as you said were sometimes there is more of hybrid deal versus the fewer program fees which can impact the gross margin percent..

We’re rated on the market analysis. So both the NelsonHall report as well as the Baker's Dozen report, the Baker's Dozen is choosing the 13 companies that they rate higher. So, that’s the global report so we are among the best 13 companies globally.

And NelsonHall is also very highly on Hudson with great rates mainly because of the client stratification that they have received from our clients we have introduce as well as our capabilities for service delivery. The market research are quoting on average growth of the RPO market of around 15% by region-by-region but that might be a good average.

So it’s a very interesting market with growth per se to be in and in the least position there.

Difficult to say the profitability of the RPO business alone we don’t disclose that already would depend on our allocation methodology the early way to really look at that would be to see what is the direct profitability of the business and we don’t disclose that because that is part of our competitive data that we don’t want to make it public..

And then in terms of the business is lumpy as you mentioned, do we have any perspective on the growth in our RPO business based on contracts, one, your estimation of when those contracts will start generating revenue for you and the duration of the existing contract.

How should we think about 2015 or 2016, is that a business that you think grows in line with the marketed 15% or just based on your wins in lumpiness it’s going to be more or less by some degree..

It’s hard to say David. I think for sure we would expect to stay up with the market. As I said we’ve had some good wins recently that are not yet showing up on revenue but will hopefully in the second quarter.

I think the expectation is with our focus and our -- in certain regions are strength there that we would probably beating the market, but overall I think we say yes, we should absolutely be in line with, if that 15% is the right number and that will be our expectation..

And qualify the average because this is a lumpy business. You get contract, bring volume and you might get 54% growth in a quarter and then following quarter you might be flat because of the lumpiness of the business.

So on average, not fully isn’t worked we would be on the market or above that market but you might expect some lumpiness quarter-over-quarter especially when you have seen high growth in the previous quarters..

And when you talk about wins or good win, can you quantify what are particular wins you don’t have to mention the clients, but just approximately is the win a $1 million in revenue a year or is the win $2 million or $3 million?.

It’s somewhere between 0.5 million and 1 million, that’s a good win..

And that’s per year, and what’s the typical duration of the contracts if you just announce -- you say three year engagement..

There are three types of RPO engagement; I mean there is long-term engagement whether it’s a full outplacement of the recruitment function. There are project engagements too where what you’re doing is complementing the capacity of the client on a peak for a specific project which then it does the length of the project is the length of the contract.

And then sometimes there are specific demands on a functional support which is less so. But we’re more concentrating on the three year contract and projects; those are the two areas where we are mostly positioned..

If we win RPO business, does that drive any other silos in the company, does that generate revenue incrementally outside of that contract whether it’s within your TM component or in Perm or temp, is that helping other parts of the company or is it really a standalone six segment?.

No, we operate the three business units recruitment, talent management and RPO, where they have the strong bridges that creates synergies among the three of them. The recruitment business is the one that's present in 18 countries; give us a lot of capillarity in terms of market presence.

So many of the leads that got to RPO, are coming from the recruitment business. So the flow of business is lease generating by recruitment go to RPO in many instances.

Talent management complements RPO by offering some attachment tools that allows RPO consultants to offer additional added value to our clients and that creates more of a partnership with our clients where you were yet not searching candidates for them.

But that partnership with our talent management tools getting more in depth into that recruitment and assessment process. Constant and overflow of requirement in RPO clients that cannot be satisfied either because they are very specific or just because of capabilities and those are then outsourced from RPO into our agency recruitment business..

And if I look at your RPO business and then the components of talent management and recruitment that say are essentially tied to that sale. How big is that cluster as a percentage of all of Hudson's. So I've got 70 million revenue 40 million in gross margins from RPO.

How much would you guesstimate of talent management recruitment lines up with that cross selling that put's synergistic combination?.

It's hard to say David, I it's not -- I wouldn’t say that's a hugely material number. I’ll be honest it could be more it's not, I don’t have the data and I put my details -- it's not a material additional impact..

And you remember for one second. You've mentioned earlier that we had about dollar share of cash. So we're looking at the stock today trading at $2.65.

So I think anybody that owns that this is now paying $1.65 times 33 million shares for Hudson Global which is next to no money and routinely RPO businesses when they've traded have traded for between two and three times gross margin. So that’s $80 million to $120 million business value for that small part of your company.

Suggesting that Wall Street is valuing all of us at a significant negative value. I recognize you're taking steps here to remove costs and improve the profitability of the underlying business.

What are investors missing in that they're not understanding the value of the RPO or they don’t see the potential for you to accomplish this restructuring savings and get to this 6% or 8% margin on your own? So we had some sequential improvement modestly in 2014, so thank you for that.

And the cost savings we seem like we’re going to get the bulk of those coming in 2015. And you are still tweaking your portfolio, you remove Sweden, you sell eDiscovery.

Would you say we're basically done on the pruning of the portfolio or is there sort of still loss making European components of the company that you think don’t fit here going forward and may be paired off..

I think we have very transparent on all we have said and the company is growing in most of the markets.

So when we have the final portfolio once that -- it be on talent management high value businesses where we are growing 14% and 12% respectively, 40% which is a big chunk as well on our portfolio is permanent recruitment where we have also grown 14% last year.

And we are only dealing with the 25% of temporary recruitment which we are dealing and is taking more time to man but staff was the only one that decreased 8%.

And then you've seen the improvements that we've made on the EBITDA from last year and I do pointed out before the AlixPartners engagement with our recommendation started to be implemented in 2014. But most of the savings are going to fall on 2015.

And further more we are disclosing that we have invested in talent in our front office which because of the longer tenure and productivity will have also better by 2015. We are optimistic about generating value, we are explaining that both in our remarks and the all press releases and it's up to the market to draw their conclusions.

The only thing we can do is continue working very hard creating value in the company, investing in the areas that show more profitable growth and we believe that doing that the market would end up recognizing the real value of the company and in terms of what have happen or what is a current trading with the available information.

The only thing we know is that we have only spotted one large client that has decided to work with Hudson and the moment that happens even if the rate of that market is happy because of the narrow trading of our stock has the big impact. I cannot comment on what really happen that’s kind of like my own personal understanding..

And given your liquidity position 34 million in cash no debt and a prospect for becoming EBITDA positive with a lot of conviction as you said earlier in the call.

Have you contemplated the share repurchase as a means of returning some of that cash to investors and then capitalizing what seems like a very large discount to the value of your business?.

We continue look at and contemplate all possible options that would be on the best interest of our shareholders and if returns from the investing in the company are not expected to deliver more returns we will absolutely consider other options like the one you've just mentioned..

One last question and just in terms of the going back to the concept of your portfolio.

Do we feel at this point we're strategically complete with the moves you’ve made by reducing your exposure in Sweden and eliminating eDiscovery or are there options in Europe or elsewhere where you can remove the business structurally or strategically less important to you..

I think we’ve been very clear on the strategy and we will not disclose the legal tactics..

[Operator Instructions]. I’m showing no further questions at this time. I’ll now turn the floor back over to management for any additional or closing remarks..

Thank you, Maria. And thank you all for joining Hudson Global’s fourth quarter conference call. Our call today has been recorded and will be available on the Investors section our Web site hudson.com shortly. Thank you. Have a great day..

Thank you. This concludes today’s call. You may now disconnect and have a wonderful day..