David Kirby - IR Stephen Nolan - CEO Patrick Lyons - CFO.

David Sachs - Hocky Capital.

Good day ladies and gentlemen and welcome to the Hudson Global Fourth Quarter 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder today's conference is being recorded.

I would like to introduce your host for today, Mr. David Kirby. Sir, please go ahead..

Thank you, Michelle, and good morning, everyone. Welcome to the Hudson Global conference call for the fourth quarter of 2015.Our call this morning will be led by Chief Executive Officer, Stephen Nolan; and Chief Financial Officer, Patrick Lyons.

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 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 in our quarterly slides both posted on our website at hudson.com. I encourage you to access our materials at this time as they will serve as a helpful reference guide during our call.

As you review our fourth quarter results, please remember that we exit a number of businesses during 2015 that are now classified as discontinued operations and thus are part of the prior year reported results.

We have provided a reconciliation from reported to retained revenue and gross margin in the press release and in the earnings slides and we will refer to both sets of numbers. Retained revenue and gross margin exclude all businesses sold or exited in the current and prior year in I would say 2014-2015.

With that, I will turn the call over to Stephen Nolan..

Thank, David and good morning everyone. I am pleased to report continuing progress in our financial performance. Fourth quarter 2015 reported revenue of $106 million came in at the middle of our guidance.

And compared to Q4 last year, was impacted by a $13 million reduction due to the stronger dollar and a $19 million reduction due to the sale of two businesses earlier the year. On a retained basis, revenue grew just under 1% in constant currency. Gross margin was $44 million, up 2% year-on-year on a retained basis in constant currency.

Gross margin in our recruitment business fell 3% year-on-year with perm 5% down, while temp contracting grew 1%. Gross margin in our recruitment process outsourcing or RPO business grew 19%, while talent management grew 2%. Reported SG&A costs were $43 million or 15% below last year in constant currency.

At quarter end, we had over 1,250 fee earners or consultants, up 10% on last year. Support costs were substantially lower in Corporate and in the Americas. Fourth quarter adjusted EBITDA was a $1.1 million profit compared with a $2.4 million loss last year on a reported basis.

The year-on-year improvement in adjusted EBITDA in constant currency was $3.6 million. The improvement was driven by the progress we are making in all the areas with Asia Pacific up $1.4 million, Americas up $800,000 and corporate costs lower by $1.9 million. Europe’s reported numbers are impacted by the exit of businesses.

Adjusted EBITDA in that region was up a $100,000 on a retained basis. Turning to regional and country performance in the fourth quarter; Americas’ Q4 reported results now include RPO and related businesses. The comparison for last year is impacted by the sale of IT in June of 2015.

Gross margin grew 8% on last year with growth at new and existing clients. SG&A costs were lower as we completed the transition to a more cost effective support structure. The Americas' team did a fantastic job over the last 18 plus months and we are all very happy that they are fully focused on growing our RPO and related businesses in this region.

Asia-Pacific had a strong fourth quarter with year-on-year growth in revenue and gross margin of 6% constant currency. Gross margin improvement was driven by our recruitment businesses in Australia, New Zealand and Hong Kong as well as RPO across APAC.

China recruitment had a soft quarter as prevailing market conditions, reduced demand and slowed hiring decisions. Perm fell 1% while temp contracting grew 8%. RPO grew 29% led by Australia and Hong Kong. Talent management declined 3% in Q4 as we have seen some projects ending there and that will also impact 2016 performance in the short term.

In Europe, we see growth on a year-over-year basis, in Belgium and Spain; offset by UK and France. Gross margin from our retained business fell 2.5%. UK gross margin fell 13%, mainly Perm for accounting and finance, and legal were below last year. We closed a number of practices during 2015 including oil and gas in Scotland which impacted gross margin.

RPO gross margin grew 15%, driven by new and existing customers. Continental Europe delivered gross margin growth of 9% led by 11% growth in Belgium and 40% growth in Spain, offsetting an 8% drop in France. Turning to the full year our retained businesses generated $436 million in revenue and a $181 million in gross margin.

Our largest business recruitment had revenue of $326 million in 2015 and gross margin of a $113 million. This business is anchored in Asia-Pacific where we saw 14% year-over-year growth in gross margin and the UK where gross margin fell compared to last year, but we've seen some recent positive signs in England and in Scotland.

Global RPO had revenue of $71 million and gross margin of $40 million. We saw our gross margin growth in every region totaling 11% year-on-year. Based on the market opportunities, our competitive strengths and long-term relationships we continue to invest and win and is growing a profitable business.

And in 2016 we will look to strengthen our position and our funds collectively locked [ph] at new markets. Talent management had revenue of $37 million in 2015 and gross margin of $28 million. This is primarily focused in Europe where we saw -- where we grew 3% year-on-year and Asia-Pacific which was down compared to a strong 2014.

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. This past year was important for Hudson. In 2015 we have delivered constant-currency growth in gross margin in three of the four quarters.

We invested in consultant headcount of 10% from last year to continue driving further growth in 2016. We reduced our corporate and support cost by $10 million plus on an annualized run rate basis.

In our retained business and adjusting for foreign exchange on unusual items, we have improved adjusted EBITDA by more than $8 million compared to last year. We successfully divested and exited and a number of non-core businesses and markets helping to bring focus and investment to core opportunities. We launched a $10 million share buyback program.

We announced the regular dividends of $0.05 per share per quarter which will start later this month. We are encouraged by these improvements and continue to work hard to realize the full potential of Hudson.

In 2016 we expect to continue growing gross margin in our core markets and to deliver full year profitability at the adjusted EBITDA level to higher productivity and focused execution. Even as our business fundamentals continue to improve, international economic scenarios remained uncertain.

And as we cross our breakeven point our profitability will be sensitive to top line variations. I'll now turn the call over to our Chief Financial Officer, Patrick Lyons to review some additional data points from the fourth quarter as well as our 2016 first quarter outlook..

Thank you, Stephen and good morning everyone. We incurred 200,000 in restructuring charges in continuing operations in the fourth quarter and 5.8 million for the full year. We have completed most of our initiatives that continue to look at cost savings ideas.

Our new stock buyback program started in August 2015 and we purchased 265,000 shares in the fourth quarter at a cost of $700,000. From redemption [ph] through February, we purchased over 750,000 shares at a cost of $2 million. Our fourth quarter tax provisions for continuing operations was $2 million.

For the full year 2015 the tax provision was 600,0000. Stock compensation expense was $300,000 in the quarter and 4.2 million for the full year including the 2.5 million charge related to change in control in June 2015. Capital expenditure were 700,000 in the fourth quarter and 3.1 million for 2015. We expect approximately 3 million of CapEx for 2016.

We ended the quarter with $37.7 million in cash and $20.5 million in available borrowings, totaling $58 million in liquidity. We had $2.4 million in borrowings on our credit facilities at the end of quarter four.

Day sales outstanding or DSO was 47 days, an improvement of one day over last quarter but three days higher than a year ago, mainly driven by yearend working capital management by some large clients in Asia-Pacific. Looking to Q1 using our projected average exchange rates for the quarter, we expect a revenue range of $95 million to $105 million.

Reported Q1 2016 revenue was $124.3 million which translates to $170 million at constant FX rates. Adjusting for the businesses we have sold or exited, Q1 2015 revenue was $99 million at constant rates. So, our Q1 2016 revenue guidance ranges from 4% down to 6% up from prior year in constant currency.

Regionally, we expect Asia-Pacific revenue will be more or less flat year-over-year in constant currency depending on product mix. With continued growth in contracting and RPO offset in part by the weaker market conditions we are seeing in our higher margins, perm and talent management businesses.

We expect adjusted EBITDA to be lower due to the challenging conditions in China in Talent management. We expect the Americas RPO revenue and adjusted EBITDA to be up than 2015.

In Europe, we expect revenue to our retained businesses to be flat to down slightly from prior year and improved from recent quarters as the UK starts to improve, while the rest of Europe remains steady. Adjusted EBITDA in the retained business should be improved from prior year just as we saw in the Q4.

Starting in quarter one adjusted EBITDA results and outlook will exclude stock compensation cost. On this basis for Q1 we expect adjusted EBITDA of between negative 1 million, and negative 2.5 million which compares to a reported loss in Q1 of 2015 of $4.3 million, or 3.7 million access stock compensation cost.

We expect the year-on-year improvement in adjusted EBITDA to be mainly driven by the Americas business as well as lower corporate cost. Mitchell, please open the line for Q&A..

Thank you. [Operator Instructions]. And I'm now showing no questions -- I’m sorry I am now showing a question from [Indiscernible] Capital. Your line is open. Please go ahead..

The question that I had is I think on the last call when we -- on which we spoke, you had mentioned that there have been some efforts in the company to basically increase the fee earners and show some growth on the RPO side line.

The guidance that you are actually put out today for Q1, does it reflects that or do you still -- there is still time for those efforts to actually produce a results?.

So I think, yes, I mean we referenced the number of fee earners as over 1,250 which is up fairly substantially over prior year.

RPO, we absolutely continue to invest in our core markets and we have seen very good growth there, I think it's about 29% growth in Asia-Pac in the fourth quarter and we are continuing to bid and to win new business there all the time and retain existing clients.

So that's a huge focus of ours and in our portfolio we obviously have a recruitment business, the talent management and RPO. RPO is in great shape and will continue to do well we think in 2016 and we will continue to be invested in some of the investments that we have done in recruitments.

We will be working now on productivity to make sure that new folks we've brought in are as productive as they can be. That sometimes the functions is all about having strong leaders in the practices that we have particularly in the UK and in Asia Pacific.

So, its -- there's a mix there and that's really what I could say is that the pieces are as normal how some different opportunities, different challenges, and we try to manage the whole thing to come up with what we see now as our outlook..

As you mentioned the fee earners have basically grown year-over-year, quarter-over-quarter, sequentially, despite that I mean basically are they not in -- engaged in active projects right now or I mean what goes in the guidance, we're all aware that there had been some weakness in China and Asia-Pacific as a whole, but can you just elaborate a little more on as to what goes into the guidance? Is there, what sort of a segment decline and geographically are those fee earners that have basically increased, are there just not actually earning right now or are they still -- they’re still not inactive projects?.

Well in this business, across the board and I was in Shanghai two weeks ago and meeting with our teams there and there is absolutely activity in the market and our sales people are chasing what is mostly a perm business there, there is RPO as well, maybe projects.

But, I mean the activities are still there, people are hiring, it just is taking longer I would say. And there is the -- the process is, so it’s not unusual.

I think in the UK we’ve had some internal challenges, again I was there a few weeks ago as well and it's definitely feels like there is more traction there with the folks we've brought in and also our tenured people in terms of the market opportunities that we're going to be able to capitalize on.

So, I mean it is a combination really of the product mix we have as well as some of the tenure of the consultants and as well as some of the market conditions I would say, that's really the function of the guidance we've given.

But with the investments that we’ll be making there, which we've been funding somewhat from cost savings in other areas, we will be looking now for gross margin growth there throughout '16 as these folks become more productive and we hope that the stability remains or -- not sure remains is as helpful as it can be in terms of the market..

So, I don't know basically on an annual basis for 2016 you're guiding to be profitable in terms of adjusted EBITDA on the full year basis?.

Yes..

Okay and one last question regarding basically the recent divestitures, do you think the business that you have as of today, is it sort of like the right mix in terms of scale and profitability? Is there -- there's always been a question about Hudson with -- basically in too many geographies, in too many areas, but obviously you need scale in the recruitment business as well.

So, what do you feel about it, do you think it's the right mix, do you -- will the company be able to basically produce consistent profitability with this and the business that you have as of today?.

That's the path that we've been on and I think that's -- we see, the first quarter is always hard because Australia, it's their summer, so it’s pretty soft activity in January, in Asia we have the Chinese New Year, several weeks are lost.

So it's always going to be tough quarter for us to make a profit in, we are showing we believe still good progress from what we saw last year.

For the rest of the year, yes I mean our -- when we look at the mix of businesses we have and if you look at for example Slide 16 in the deck that we sent out, we are I think looking at a more balanced portfolio as we grow RPO, as we invest as well in talent management, we're seeing growth in temporary contracting now which is a good thing to have, that contract book of business.

And permanent recruitment is a huge part of our business and will always be but that's the one that can sometimes be more fickle to either economic conditions or potentially losing some talent and then we lose the gross margin.

So, we're trying to balance out the portfolio, we are seeing I think good progress there and 12 months from now it will be interesting to see how the gross margin pie on '16 actually look compared to where we've been and where we are at this moment..

Thank you. And our next question comes from the line of David Sachs with Hocky Capital. Your lie is open, please go ahead..

As we look at the competitive dynamics of your talent management market, what differentiates your product offerings versus others and is that -- are the features that Hudson offers unique or you just do something better? And then what elements of the RPO business are showing signs of growth, is it geographic where you are seeing more account wins or is it a function of adding some of the consultants to the pipeline in that market that's providing positive outlook on your RPO business? Thanks..

Well. On the talent management side David it's kind of a mix bag. We have some firms who are in the starting space who have some talent management offerings, which they purchase, we have others who don’t have any.

We have the very strong base in Belgium both in terms of the team that actually delivers business there but also like a R&D facility who are working with institutions whether it's with educational folks or just some smart people in the space and where we've kind of marry that up then with what we see are customer needs and allows us to deliver actually very good contents that can help clients with their talent challenges, and that can be a specific projects or it can be just about an ongoing set of individual talent assessments or the organization itself.

So there is an array of services that we offer there and where also we’re finding its very good cross-selling opportunities or at least being able to sort of differentiate ourselves when we’re talking to someone about how we can help. So on RPO the wins are across the geographies.

I mean we've had some very good wins in North America recently, as Lori and the team have been able to focus more on that aspect. Europe we've been winning business and Asia-Pacific.

And the wins are driven by our sales team and with RPO you have to also then be going as fast as you can on implementation which is really when you start to get to the revenue that you can build, so we've been focused as well on that second element of helping clients implement as fast as possible and able to get improvements but also revenue.

So it's a -- I think it's a good story. When I was in Sydney a few weeks ago, we were also talking about where it would help us to be in other markets in that geography and we are planning sometime in the 2016 to actually go down that road as well which I think is a very positive signal. .

Are you winning to as a result of, an expertise that Hudson brings to the equation, whether it's in talent management or RPO or are you winning based on price or are you winning based on some other set of attributes?.

I mean Dave we were winning names that you would know and we’re winning I think because of the way that customers feel about the solutions that we can offer them.

We are not one of the mega firms in this space, but we have some very big -- we have global capabilities, we have some good software, we have some very talented people who are able to point to reference able clients whether it's in financial service or life sciences or customer products.

And I think they look at us and say, we feel comfortable that we can hand over the talent challenges we have to the Hudson team and we’re not -- it's not really a price issue with us because it's going to be very hard for us to compete against some of the Megas on price.

So the client in the sense ends up making a choice there about the services we can offer obviously at competitive pricing sometimes it's because the geography or sometimes it's because we have reference able clients or there is just a comfort level with the team who are very tenured talent the group of people who are able to deliver for them..

Okay. Where hopefully 2016 delivers on positive adjusted EBITDA as you have suggested earlier and the trend in the organic growth continues, good work in 2015. Thank you..

Thank you, David..

Thank you. [Operator Instructions]. And I'm showing no further questions at this time. And I would like to turn the conference back over to Mr. David Kirby for any closing remarks..

Thank you. And thank you everyone for joining the Hudson Global fourth quarter conference call. Our call today has been recorded and it will be available on the Investors section of our website, hudson.com later today. Thank you. Have a great day..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Everyone have a great day..