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

Steve Cole - Mangrove.

Good day, ladies and gentlemen and welcome to the Hudson Global Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded. I would like to introduce your host for today’s conference, David Kirby. Sir, you may begin..

Thank you, Cana and good morning, everyone. Thank you for joining the Hudson Global conference call for the second quarter of 2017. 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 adjusted EBITDA.

A reconciliation is included in our earnings release and on our quarterly slides, both posted on our website at hudson.com. I encourage you to access our earnings materials at this time as they will serve as a helpful reference guide during our call. I will turn the call over now to Stephen Nolan..

Thank you, David; and welcome, everyone and thanks for joining us today. For second quarter, we reported revenue of $114 million, up 4% on Q2 2016 in constant currency and at the upper end of our guidance. Gross margin was $48 million, up 6% on last year. Our recruitment gross margin grew 9% with perm growth of 14%, while temp contracting was 2% lower.

Gross margin in our RPO business was up 4% and talent management was down about 1%. SG&A costs were $45 million or 3% below last year on a constant currency basis. In Q2 last year, we recorded a charge of $2.5 million relating to the arbitrations with the previous CEO. At quarter end, we had 1,180 fee earners, 4% below last year.

We reported an adjusted EBITDA profit of $3.4 million, a $4.1 million better than last year, driven by improvements in Asia and the UK, plus lower corporate costs, mainly the arbitration. Q2 build on the positive starts we’ve seen in Q1 and we were very pleased to see year-on-year growth in gross margin and profitability in each of the three regions.

In addition, we’re very happy to see strong cash generation in Q2. Turning to regional and country performance in the second quarter. Americas gross margin grew 18% with growth at new and existing clients.

SG&A costs were slightly higher due to investment in sales and delivery capabilities and adjusted EBITDA was $400,000, a significant improvement from a breakeven result in Q2 last year. Asia Pacific had a good second quarter with year-on-year growth in revenue of 11% and gross margin up 5% in constant currency.

In our recruitment business in Australia and New Zealand, we saw a strong revenue and gross margin growth, up 21% and 8%, respectively. In our Asia recruitment business, gross margin grew 12% with a return to growth in China and another strong performance in Hong Kong. Singapore continues to stabilize.

Overall, for the Asia Pacific region, gross margin in our recruitment business grew year-on-year by 9% with temp contracting up 8% and perm up 10%. RPO gross margin in APAC was down 5% in Q2 with lower client demand in Australia compared to strong project driven growth in the first half of last year.

Asia RPO grew 20% led by Singapore attributed to new clients. Talent management was up slightly with 6% growth in Australia, offset by lower activity in Asia. In Europe, gross margin was up 6% with strong growth in perm, 18% up, offset by lower temp contracting in the U.K.

RPO grew a 11% with growth of new clients, offset by lower hiring and project activity at a number of others. Talent management was down 2% with growth in the U.K. and Belgium offset by France, which had a very large project in Q2 last year. In the UK, gross margin fell 2%.

UK, the perm recruitment grew nicely in Q2, up 13%, while temp was down as we continue to see lower activity of financial services clients.

The teams in England and Scotland have been working hard to return to profitable growth, and I was very pleased to see year-on-year growth in the month of June and July led by IT, accounting and finance, and legal practices.

As we mentioned on our last earnings call, we continue to focus on adding new clients and specializations where we can leverage our talent management and marketing expertise in the UK.

Continental Europe delivered strong gross margin growth, up a 11% across all markets with excellent performances in Belgium, up 14%, and France up 7%, again, say tough comparison last year. Spain and Poland we saw a slower conditions and single-digit growth. Looking at our performance in the first six months of 2017, we grew revenue by 4.5%.

Gross margin was up 6% with growth in every region and every service offering. Recruitment gross margin grew 9%, while RPO and talent management each grew 2%. SG&A costs were lower and adjusted EBITDA of $3.8 million with $6.5 million better than the first half of 2016.

We are pleased with our year-to-date performance in 2017, and I thank all our employees for their hard work and dedication. I’ll now turn the call over to our Chief Financial Officer, Patrick Lyons, to review some additional data points from the second quarter, as well as our third quarter outlook..

Thank you, Stephen. And good morning, everyone. We had no restructuring charges in the second quarter. We purchased 141,000 of Hudson shares in the second quarter at a cost of approximately $200,000. From inception of the stock buyback program in August 2015, we have purchased 3.4 million shares at a cost of $7 million.

Our second quarter tax provision from continuing operations was a tax charge of $900,000. Capital expenditure was $45,000 in the second quarter, and we expect approximately $1.5 million to $2.5 million of CapEx for the full year.

Cash flow from operations was a positive $4.5 million in the second quarter and was driven by both the positive net income generated in the quarter, as well as tight working capital management.

Days sales outstanding improved to two days from the end of quarter one and we expect to generate positive cash flow from operations in the second half of 2017. We ended the quarter with $14.9 million in cash and $22.7 million in available borrowings, totaling $37.6 million in liquidity.

We had $6.8 million in borrowings on our credit facilities at the end of the second quarter, mostly in Australia to support the continued significant growth in our contracting business there. Looking to the third quarter and using our projected average exchange rates for the quarter, we expect a revenue range of $110 million to $120 million.

Reported third quarter 2016 revenue was of $108 million which translates to $110 million at constant rates. Our third quarter 2017 revenue guidance, therefore, ranges from flat to up 10% against prior year in constant currency.

Regionally, we expect Asia Pacific’s revenue will be above last year in constant currency, with continued year-over-year growth in Australia/New Zealand, as well as in Asia. We also expect adjusted EBITDA to be better than prior year. We expect Americas revenue and adjusted EBITDA to be up on 2016.

In Europe, we expect revenue to be down on prior year due to the lower temp contracting at our UK financial services clients. However, we expect adjusted EBITDA will be up on prior year as we continue to make good progress in the UK.

I would also note that Q3 is a seasonally weak quarter for us each year in Continental Europe due to the impact of summer holidays there. In total, for the third quarter, we expect adjusted EBITDA of between breakeven and a $2 million profit, which compares to an adjusted EBITDA of $400,000 a year ago.

Operator, can you please open the line now for questions..

Operator, we’ll open the line for Q&A at this time..

[Operator Instructions] And our first question comes from Steve Cole from Mangrove. Your line is now open..

Good morning, guys. A couple of quick questions. Could you address the share buyback, and your thoughts on this? I know you mentioned the total since 2015 which I’m doing my math right, is essentially a couple of bucks of share and you bought a little bit at this quarter.

Are you precluded under the credit facility or are there some restrictions on how much you can buy under that plan right now or could you maybe give us a little bit of color on what your thoughts on what the stock rate is?.

No. We have no appreciations under our credit facilities. What we have in place is an automatic program and with such buying guidelines and basically subject to that we’re in the market every day..

Okay.

So it’s just a normal constraints that you have based on volume, is that -- of volume that’s placed more or less?.

Right. Exactly..

And second question, I guess, I’m curious, when you guys look at capital allocation across your different regions and different product areas, where is the focus? We talk and heard a lot about RPO over the last couple of years, but can you maybe spend a few minutes addressing how you plan on allocating capital and what’s the focus is to drive growth as we look forward over the next year or two?.

Steve, hi. It’s Stephen Nolan. So, good question.

And what I would say is, yes, there is probably an overarching goal we have, as we looked at the set of pie charts that we have in our slides around trying to balance out a little bit of higher gross margins from RPO and public talent management and then maintaining recruitment, but you know you have to be a bit careful there sometimes with perm.

It can be -- it can come and go. That sort of -- will be one. I think there is -- I think a lot of it comes down at that regional level and down into the country level as I’m going around and talking to each of the leaders there and we see the opportunities in the market.

For example, now in London, we have seen some really good activity where we’re lending our recruitment talent management teams around digital transformation and a lot of sort of, challenges that are going on in that market and we’ve recruited some really good people and we’re able to come out with fantastic offerings and drive a lot of gross margin.

So some of that can be more opportunistic and we have, in a particular region, a great team and a great opportunity and others are more of that kind of strategic level, as I said, like RPO, will always be a big focus for us. We have a very strong pipeline at the moment in RPO.

We will see some of this project activity come and go as well, but that remains for us a key area. But it’s a -- it’s our plans in the country sort of reasonable level up and we’re sticking within our core offerings. We’re not going to go into other and we are not really looking to expand into other geographies.

So, it’s more of just doing better with what we have at the moment in the structures that in each country..

And I would add in terms of capital, that’s mainly real estate, back office systems, just the nature of our business, Steve. It’s pretty light on that type of capital. For example, on real estate, RPO requires very little real estate, because most of our employees supporting our key RPO clients work on-site at the clients’ premises.

And in terms of back office systems, we tend to use common systems to support all business lines. So hence, our capital expenditure each year is not a huge figure..

Okay. And last question. I know you guys probably share the same level of frustrations, some of us do on the share price, what do you think will serve as the catalyst to kind of get back to more of a fair valuation as we -- as maybe you guys see it, as certainly as we see it, which is in $1.30 whatever it is, $1.25 over there..

So within the things that we control, Steve, I think it’s been about -- we talked about four I’m going to guess really five quarters now profitability if you exclude the arbitration last year getting to a positive cash position or generation story. We’re trying to retain the good people we have.

I think all of those things we will -- we have our niche, we just have to execute better in our niche. There’s probably some additional work or opportunities we have to be out more now with our story whether it’s our conferences et cetera, but a lot of the noise we had, that probably wasn’t a great time to do that.

So, but I think our focus has been to get the internal plumbing rights to start delivering, I think we’re on a good path and I think we will do what we can to improve the message..

Thank you. [Operator Instructions] And I’m not showing any further questions. I would now like to turn the call back to David Kirby for any further remarks..

Thank you, Cana and thank you all for joining the Hudson Global second quarter conference call. Our call today has been recorded and will be available on the Investors section of our website at hudson.com shortly. If there are no other questions, we will conclude the call at this time..

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program, and you may all disconnect..