David Kirby - SVP of Treasury and IR Stephen Nolan - CEO & Director Patrick Lyons - CFO and CAO.

Analysts:.

Good day, ladies and gentlemen, and welcome to the Q3 2017 Hudson Global Earnings Conference Call. [Operator Instructions]. I would like to introduce your host for today's conference, Mr. David Kirby. Sir, you may begin..

Thank you, operator, and good morning, everyone. Welcome to the Hudson Global conference call for the third 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 the 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 material -- earnings materials at this time as they will serve as a helpful reference guide during the call. I will now turn the call over to Stephen Nolan..

Thank you, David, and welcome, everyone, and thank you for joining us today. For the third quarter, we reported revenue of $118 million, up 6% on Q3 last year in constant currency and at the upper end of our guidance. Gross margin was $47 million, up 6% on last year in constant currency.

Recruitment gross margin grew 7%, with perm growth of 12%, while temp contracting was 2% lower. Gross margin in our RPO business was up 6% and talent management grew 1%. SG&A cost were $46 million or 4% above last year. And at quarter-end, we had 1,180 fee earners, flat to last year.

We reported an adjusted EBITDA profit of $1.3 million, or $800,000 better than last year, driven largely by improvement in Asia and in the U.K. Q3 built on the positive start we had seen in the first half. In addition, we are pleased to report $1 million in positive cash flow from operations in the third quarter.

Turning to regional and country performance. Americas' gross margin was basically flat with growth at new and existing clients offset by lower activity of 1 large client. Adjusted EBITDA was $600,000, up nicely on last year.

Asia Pacific had an excellent third quarter with year-on-year growth in revenue of 15%, and gross margin up 10% in constant currency. In our recruitment business in Australia and New Zealand, we saw a continued revenue and gross margin growth, up 18% and 3%, respectively.

In our Asia recruitment business, gross margin grew 25%, with a return to year-over-year growth in China and another strong performance in Hong Kong. Overall, for the Asia Pacific region, gross margin in our recruitment business grew year-on-year by 10%, with temp contracting up 8% and perm up 11%.

Asia Pacific RPO gross margin was up 6% in the third quarter, led by strong growth in Hong Kong. Talent management was up 28%, led by Australia and New Zealand. In Europe, gross margin was up 1%, with strong growth in perm, up 12%, offset by lower temp contracting in the U.K. RPO was up 20% with growth at new and existing clients.

Talent management was down 12%, mainly in France, where we had a very large project during Q2 and Q3 last year. In the U.K., gross margin fell 3%. U.K. perm recruitment grew nicely in the third quarter, up 15%, while temp was down as we continued to see lower activity at Financial Services clients.

After a tough few years and despite choppy market conditions, our U.K. business is now profitable and is well positioned with a tenured and talented team and strong offerings. Continental Europe delivered gross margin growth of 4% across most markets, led by Belgium, up 11%.

France was down 12% against a tough comparison last year, while Spain was a bit softer and Poland grew nicely. Looking at our performance in the first 9 months of 2017, we grew revenue by 5%. Gross margin was up 6%, with growth in every region and every service offering.

Recruitment gross margin grew 8%, while RPO grew 4%, and talent management was up 1%. For the first 9 months, adjusted EBITDA of $5 million is $7 million better than the first 9 months of 2016. We are pleased with our year-to-date performance so far this year, 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 third quarter as well as our fourth quarter outlook..

Thank you, Stephen, and good morning, everyone. We had $500,000 in restructuring charges in the third quarter, mainly through offs for previous real estate actions. We purchased 126,000 of Hudson shares in the third quarter at a cost of approximately $180,000.

From inception of the stock buyback program in August 2015, we have purchased 3.5 million shares at a cost of $7.2 million. Our third quarter tax provision from continuing operations was a tax charge of $500,000. Capital expenditure was $250,000 in the third quarter. We expect approximately $1 million to $1.5 million of CapEx for the full year.

Cash flow from operations was a positive $1 million in the third quarter and was driven by improved profitability and tight working capital management. Days sales outstanding improved 2 days from the end of Q2. We expect to generate positive cash flow from operations in the fourth quarter of 2017.

We ended the quarter with $16.8 million in cash and $20.1 million in available borrowings, totaling $36.9 million in liquidity. We had $8.2 million in borrowings on our credit facilities at the end of the third quarter, mostly in Australia to support the continued significant growth in our contracting business.

Looking to the fourth quarter and using our projected average exchange rates for the quarter, we expect a revenue range of $110 million to $120 million. Reported fourth quarter 2016 revenue was $100 million, which translates to $105 million at constant rates.

Our fourth quarter 2017 revenue guidance, therefore, ranges from growth of 4% to 14% 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 and 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 flat to slightly down on 2016. In Europe, we expect revenue to be flat to down slightly on prior year due to the lower contracting revenues in the U.K.

However, as in quarter 3, we expect adjusted EBITDA will be up on prior year in Europe, as we continue to make good progress in the U.K. In total, for the fourth quarter, we expect adjusted EBITDA of between $1 million and $3 million, which compares to an adjusted EBITDA of $900,000 a year ago.

Bruce, can you now open the line for questions, please?.

Operator:.

We will pause just another minute, Bruce, to see if anyone does have a question. And if not, we can conclude the call. Thank you all for joining Hudson Global's third quarter conference call. Our call today has been recorded and will be available on the Investor section of our website, hudson.com shortly. Thank you, and have a great day..

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