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

Analysts:.

Good day, ladies and gentlemen, and welcome to the Hudson Global Third Quarter 2016 Earnings Conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] And as a reminder, this conference call is being recorded.

At this time, I would like to hand the conference over to Mr. David Kirby. Sir, you may begin..

Thank you, and good morning everyone. Welcome to the Hudson Global conference call for the third quarter of 2016. 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, 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 adjusted EBITDA and adjusted EBITDA reconciliation is included in our earnings release and on our quarterly slides posted on our website hudson.com.

I encourage you to access these materials at this time as they will serve as a helpful reference guide during our call. I'll now turn the call over to Stephen Nolan..

Thank you, David and welcome everyone. I thank you for joining us today. For the third quarter, we reported revenue of $108 million up 2% compared to third quarter last year in constant currency. Our reported revenue was negatively impacted by a $3.6 million reduction due to the stronger dollar.

Gross margin was $44 million down 1.4% on last year in constant currency. Gross margin in our recruitment business fell 4% year-on-year with perm 7% down while temp contracting grew 3%. Gross margin in RPO grew 2% and talent management was up 1%. SG&A costs were $43 million, 2.5% below last year in constant currency.

At quarter end we had 1,180 fee earners flat to last year. Support costs were substantially lower in corporate and the Americas. We reported an adjusted EBITDA profit of $350,000 about $600,000 better than Q3 2015.

The improvement was driven by the progress we're making in most areas, but adjusted EBITDA in Continental Europe up $800,000 and the Americas up $700,000. Corporate costs were lower by $1.1 million, adjusted EBITDA in Asia fell by $1.2 million with weak results in China while the U.K. fell $900,000 in difficult trading conditions.

Turning to regional and country performance in the third quarter, Americas Q3 gross margin grew 16% with positive momentum as we exited the quarter. SG&A costs were lower than last year as we completed the transition to a more cost effective support structure in Q4 of 2015.

Asia-Pacific had a mixed third quarter with year-on-year growth in revenue of 11% while gross margin fell 6% in constant currency. In our recruitment businesses, we saw strong gross margin growth of 14% in Australia and New Zealand. In Asia, gross margin fell 27% mainly China and somewhat offset by a great performance in Hong Kong of over 200%.

In China both our recruitment and RPO businesses had another difficult quarter as we deal with tougher market conditions and some internal challenges. As I mentioned on our last earnings call, our businesses there grew very rapidly over the last few years and we hit some growing pains this year, including a number of leadership changes in Q3.

The business is stabilizing and the leaders and their teams are working very hard to continue delivering excellent service to our clients. At the APAC region level temp contracting grew 23% while perm fell 15%. RPO fell by 7% with growth in Australia offset by lower client demand in China and Hong Kong.

Talent management was down mostly Australia as a number of projects ended. In Europe, we saw gross margin growth on a year-over-year basis in Belgium, France, Spain and Poland, offset by weaker results in the U.K.

At the European region level, gross margin was up 1.6% with growth in talent management, perm and RPO, offset by lower temp contracting in the U.K. In the UK itself, gross margin fell 16% with 12% growth in RPO offset by a 21% drop in our recruitment business in England and Scotland.

We've seen a reduction in demand from financial sector clients, especially in temp contracting, which fell 24%. Historically in the U.K. we had a large concentration in the FS sector across many practices and also with a number of big clients.

We've been working hard to diversify into new client and sectors and are seeing some good progress there, but obviously the micro landscape in the UK financial has changed more rapidly in the last few months. Continental Europe delivered strong gross margin growth across all markets 19%, Belgium up 12%, France up 38%, Spain up 11% and Poland up 26%.

Looking at our performance in the first nine months of 2016 on a retained basis and constant currency, we grew revenue by 2.1%, gross margin was almost flat with growth in Americas, Europe and Australia and New Zealand offset by Asia.

RPO grew 8%, talent management was up 6%, temp contracting up 3%, offset by perm, which was down 8% in the first nine months of the year. Excluding the arbitration settlement last quarter, our year-to-date adjusted EBITDA was positive and over $4 million better than 2015.

I remain very grateful for the team's contribution and dedication to Hudson's commitment to profitable growth. For 2016, we expect continued progress in our core markets and practices and to deliver another profitable quarter in Q4 at the adjusted EBITDA level.

I'll now turn the call over to our Chief Financial Officer, Patrick Lyons to review some additional data points from the third quarter as well as our fourth quarter outlook..

Thank you, Stephen and good morning everyone. We incurred $200,000 in restructuring charges in continuing operations in the third quarter, mainly true-ups for previous real estate actions in Europe. We purchased $1.4 million of Hudson shares in the third quarter at a cost of $2.6 million, including the block trade with Sagard for 1.1 million shares.

From inception of stock buyback program in August 2015, we have now purchased 2.8 million shares at a cost of $6.3 million. In Q3 we recorded an impairment charge of $600,000 related to the book value of our fixed assets in China based on the lower profitability levels in that market.

Our third quarter tax provision for continuing operations was a tax charge of $700,000. The third quarter charge includes the full valuation allowance on the deferred tax asset on our books that relate to China. Capital expenditure was $600,000 in the third quarter. We expect approximate $2 million to $3 million CapEx for the full year of 2016.

We ended the quarter with $70 million in cash and $19 million in available borrowings totaling $36 million in liquidity. We had $8 million in borrowings on our credit facilities at the end of the third quarter, almost all of which was in our credit facility in Australia to support the significant growth we've seen in our contracting business in 2016.

Day sales outstanding or DSO was 49 days, down one day compared to last year and flat to June this year. Looking to the fourth quarter and using our projected average exchange rates for the quarter, we expect a revenue range of $95 million to $105 million.

Reported fourth quarter 2015 revenue was $106 million, which translates to $102 million at constant projected FX rates, mainly due to the weaker British Pound. Our fourth quarter 2016 revenue guidance therefore ranges from down 7% to up 3% against prior year in constant currency.

Regionally, we expect Asia-Pacific revenue will be above last year in constant currently with continued year-over-year growth in temp contracting, somewhat offset by weaker per performance in Asia. We expect adjusted EBITDA to be lower due to the impact of the growth in temp contracting against slowing perm activity.

We expect America's RPO revenue will continue to grow in Q4 with positive momentum across most clients. Adjusted EBITDA should be down slightly on 2015 due to a tough comparison to last year as we finished up our construction work as well as investment in additional sales and delivery resources.

In Europe, we expect revenue to be lower than prior year due to continued difficult trading conditions in the U.K. However we expected adjusted EBITDA will be flat to slightly better than prior year due to stronger results in Continental Europe.

In total for the fourth quarter, we expect adjusted EBITDA of between breakeven and a $2 million profit, which compares to the reported profit of $1.4 million a year ago. Operator, please open the line for Q&A..

Q - A -.

Thank you, operator. I'll read my closing remarks here and will give participants another moment to log into the queue if they desire to ask a question. Without that, thank you all for joining Hudson Global's conference call. Our call today has been recorded and will be available on the Investor section of our website hudson.com later today.

Thank you for joining. If no further questions have come we can conclude the call..

Thank you, sir. Ladies and gentlemen, thank you for participating in today's event. This concludes our program. You may all disconnect and have a wonderful day..