David Kirby - Director, Investor Relations Stephen Nolan - Chief Executive Officer.

Analysts:.

Good morning and thank you for standing by and welcome to the Q2 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. David Kirby, you may begin your conference..

Thank you, Tony and good morning, everyone. Welcome to the Hudson Global Conference Call for the Second Quarter of 2015. Our call this morning will be led by Chief Executive 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.

The risks that are discussed in our Form 8-K filed today and in 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 terms such as EBITDA.

An EBITDA reconciliation is included in our earnings release and quarterly slides, both posted on our website at hudson.com. I encourage you to access our earnings materials at this time. They are posted under future documents on the website and will serve as a helpful reference guide during our remarks. I will turn the call over to Stephen..

Thanks, David and good morning everyone. Before I discuss the second quarter results, I wanted to reflect on where we are after a busy six months. We completed a number of strategic actions including selling our US IT and Dutch businesses and seizing direct operations in four European countries.

We continue to make progress on refocusing our leaner, a more disciplined company in our core markets and practices and I am very grateful for the hard work and dedication of our teams. We entered the second half of 2015 with a focus on three distinct businesses.

Number one, recruitment, which is both Perm and temp positions, global RPO and talent management in 13 countries. We have $35 million in cash and we have line of sight to positive adjusted EBITDA. With all the changes I thought it would be helpful to get some insight now on how our three businesses finished the first six months of 2015.

If we exclude the businesses we sold, or exited, our retained businesses generated $220 million in revenue, and $92 million in gross margins. Our largest business, recruitment, had revenue of $165 million in the first half of the year and gross margin of $58 million or 35% of revenue.

This business is anchored in Asia-Pacific where we saw 20% year-on-year growth in gross margin and UK, where we have struggled recently and gross margin fell compared to a very strong first half of last year. We are investing in the UK and expect to see improvements in the second half and beyond.

Global RPO had revenue of $36 million in the first half of the year and gross margin of $19 million or 53% of revenue. Based on the market opportunities, our competitive strengths and long-term customer relationships, we continue to invest and win in this growing and profitable business.

Hudson RPO continues to be recognized as a leader in the marketplace by those in the industry and we continue to expand our roster of blue chip clients and diversified industries including financial services, life sciences, consumer products, energy, and technology among others.

Our third business, talent management had revenue of $19 million in the first half of the year, and gross margin of $15 million or 79% of revenue.

This is primarily focused in Europe and Asia-Pacific and with our R&D center in Belgium and a deep focus on customer needs, we continue to invest in our differentiated offerings that complement all our business lines.

We have made a lot of progress in simplifying the company’s structure and offerings in the last six months including some recent significant reductions in corporate costs and real estate as we push to translate all our efforts into tangible improvements in our results.

We enter again the second half of 2015 prepared and energized to return what is now a smaller, simpler, more focused business to profitable growth which delivers shareholder value. On the second quarter, our reported results are impacted by a number of items that are worth noting.

Number one, we recorded a $20 million gain on the sale of our US IT and Dutch businesses, and due to tax losses carried forward, we have minimal tax liability on these gains.

We seized direct operations in Ukraine, Czech Republic, Slovakia and Luxemburg, while none of the above actions qualify for discontinued operations treatment, we have provided a reconciliation from reported to retained revenue and gross margin in our second quarter press release and earnings slide and I will refer to both sets of numbers in my remarks.

Retained revenue on gross margin exclude all the businesses sold or exited in the current and prior year. Number three, because the majority of our Board of Directors are new in the past year, we realized $2.5 million in accelerated stock compensation expense in the quarter.

Finally, over 90% of our business that are outside the US, and the stronger dollar resulted in a $19 million negative impact on our reported revenues compared to the second quarter of last year. So, second quarter 2015 reported revenue of $123 million came in at the middle of our guidance.

These reported numbers included one month of the Dutch business and 2.5 months of the US IT business. On the retained business, on all-time basis, our revenue was $113 million, up 1% year-on-year in constant currency. Reported gross margin was $50 million and retained was $48 million, up 1% year-on-year in constant currency.

RPO gross margin grew 6%, Perm recruitment grew 1%, while temp contracting fell 2% mainly due to weakness in the UK. Reported SG&A costs were $51 million, and $49 million on a retained basis, 1% below last year in constant currency.

We continue to offset our investments in fee earners with savings in real estate and support costs, and we expect to see additional progress in the UK and the US. Second quarter 2015 adjusted EBITDA was a $800,000 loss, within our guidance range and compared to a $300,000 loss last year on a reported basis.

Turning now to regional and country performance in the second quarter. Americas’ Q2 reported results are impacted by the sale of IT effective June 14. Last year’s numbers reflect a full quarter of IT. Americas’ RPO continues to perform well with a 15% year-on-year increase in gross margin.

SG&A cost in the business unit were higher than last year due to investments in RPO sales and delivery capabilities. The reported numbers are impacted by standard cost that remain after the sale of IT and also the discoveries in the fourth quarter last year.

Asia-Pacific had a strong second quarter with year-on-year growth in revenue and gross margin of 4% and 11% respectively in constant currencies. Gross margin improvement was driven by our recruitment businesses in Australia and China. Perm grew 22% and temp contracting grew 11%.

RPO and talent management were below a very strong second quarter in 2014, as the number of projects ended. SG&A costs were 5% higher due to increased compensation for fee earners. And adjusted EBITDA in the second quarter was $1.9 million, $900,000 better than last year.

In Europe, Q2 reported results were impacted by the sale of our Dutch business effective April 30 and the exit of four countries. Last year’s reported numbers included a full quarter’s results for those businesses. In the retained business, performance was mixed with growth in Belgium and Spain offset by UK and France.

Gross margin from our retained business dropped 11% in constant currencies. Adjusted EBITDA was $1 million or $1.7 million lower than last year, almost all of that in the UK. UK gross margin fell 17% mainly due to weakness in Perm, primarily the IT and legal practices.

We have replaced leadership in both practices in England with experienced industry veterans. Our RPO business grew 18% gross margins as we implemented new business wins.

Continental Europe was down slightly with gross margin growth of 2% in Belgium and 40% in Spain offsetting a 19% fall in France, as we recover from a fall-off of two of our biggest customers there.

In the second quarter, we incurred $2 million in restructuring charges and continuing operations mostly severance and real estate costs in corporate and Europe. At the end of June, we had $2.6 million remaining under our existing 2014 plan, which we expect to spend in the second half of 2015.

We ended the quarter with $35 million in cash and $22 million in available borrowings, totaling $57 million in liquidity. We had $1 million in credit facility borrowings. The use of cash from operations in the quarter was $4.6 million and days sales outstanding or DSO was 50 days, three days lower than June of last year.

A few additional data points on the second quarter. Q2 results included $3.2 million of stock compensation including the $2.5 million relating to the accelerated vesting that I mentioned earlier. Our Q2 tax provision for continuing operations was $500,000.

Capital expenditures were $600,000 in the quarter and we expect three $4 million of CapEx in full year 2015. Looking to the third quarter using prevailing exchange rates, we expect a revenue range of $105 million to $115 million.

Our reported third quarter 2014 revenue was $149 million, which translates to $130 million at our estimated rates for Q3 this year. Adjusting for businesses we have sold or exited, Q3 2014 revenue was $111 million, our constant rates.

So therefore, our Q3 revenue guidance for 2015 ranges from 5% down to 4% up compared to prior year using constant currency. Recently, we expect Asia-Pacific revenue and adjusted EBITDA will grow year-on-year in constant currencies. Americas’ RPO revenue and gross margin will be up on 2014.

Adjusted EBITDA will be lower than last year due to standard cost as well as some of the investments in the RPO business. We still expect to end 2015 with a run rate in SG&A that can be sustained by the RPO business we now have in the Americas.

In Europe, reported revenue is expected to be lower than last year due to no discontinued operations reporting for the businesses we have sold or exited. We expect our retained business to be down 3% to 5%, adjusted EBITDA will be lower due to the weaker results in the UK.

I met with our teams in London, Glasgow, and Edinburgh two weeks ago, and I continue to work directly with the UK business which does appear to be stabilizing. We have hired some excellent leaders there and continue to retain many of our top producers.

We will continue to drive improved performance through selective investments and improving the operating model in the UK. The rest of Europe is expected to be flat with slightly down compared to Q3 last year in constant currency as weaker conditions in France should be offset by continued good performances in Belgium and Spain.

Overall for the third quarter, we expect adjusted EBITDA of between breakeven and a $2 million loss, which compares to a $2.8 million loss in Q3 last year on a constant currency basis with year-on-year improvement driven by growth in Asia-Pacific and a greater than 30% drop in corporate costs.

We remain committed to achieving positive adjusted EBITDA during the second half of 2015, and believe the traction we have shown over the last few months provides the roadmap to achieve this important goal.

In addition, considering the company’s current stock price, the Board of Directors of Hudson have authorized a share repurchase program for up to $10 million of the company’s common stock which will commence in the third quarter. Tony, please open the lines for Q&A..

Mr.

Kirby are you ready for questions?.

Yes, please open the line for Q&A. .

Okay, I am so sorry about that. [Operator Instructions] And your first question comes from the line of [Indiscernible].

Hi, thanks for taking the question.

Can you just briefly speak about the revenue split between each of the core businesses and if you see that changing potentially over the next – the following year?.

Josh, hi, it’s Stephen.

So, are you looking for the, say, third quarter view or on a more annualized view?.

I was thinking annualized, thanks..

Okay, give me one second there. Within Europe, we see it probably running at about $200 million, all in, Americas running probably $18 million to $20 million and then the balance will be in Asia-Pacific, probably coming to roughly $450 million annualized. Again, a lot depends on the exchange rates, Josh, that’s using probably prevailing rates..

That’s helpful. Thanks. .

[Operator Instructions] And there are no further questions at this time. .

Great, operator, we’ll just wait another minute to see if we are getting questions. .

No problem..

But if not, I’ll read our closing remarks and certainly if we do get a question, the next moment feel free to let us know. Thank you all for joining Hudson’s second quarter conference call. Our call today has been recorded and it will be available on the Investors section of our website hudson.com.

We have no further questions, we will conclude the call. Thank you very much. .

There are no further questions and this does conclude today’s conference call. You may go ahead and disconnect your lines..