Good morning, and welcome to the Hudson Global Conference Call for the Second Quarter 2019. Our call this morning will be led by Chief Executive Officer, Jeff Eberwein; and VP of Finance, Matthew Diamond. Please be advised that the statements made during the presentation include 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 are discussed in our Form 8-K filed today and in our other filings made with the Securities and Exchange Commission, including our annual report on Form 10-K.

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. An adjusted EBITDA reconciliation is included in our earnings release and quarterly slides, both posted on our website hudsonrpo.com.

I encourage you to access our earnings materials at this time as they will serve you as the helpful reference guide during our call. I will now like to turn the call over to Jeff Eberwein..

Thank you, Operator. And welcome, everyone. We thank you for your interest in Hudson Global and for joining us today. I'll start by reviewing the second quarter 2019 highlights. Matt Diamond, our VP of Finance will then provide some additional details on our second quarter 2019 results.

I will then give some perspective on our RPO business, Hudson's corporate costs and review the outlook for 2019.

In the second quarter of 2019, we reported revenue of $26.4 million, up 60% year-over-year in constant currency, gross profit of $11.7 million increased 13% year-over-year in constant currency, as we saw strong growth throughout our businesses in Asia, Europe and the Americas.

SG&A costs were $12 million in the second quarter, up 7% versus the same period last year in constant currency. We reported that adjusted EBITDA loss of $300,000 compared to an adjusted EBITDA loss of $1.1 million a year ago.

Q2, 2019 adjusted EBITDA includes $700,000 of non-recurring expenses, compared to $600,000 of non-recurring expenses in Q2, 2018. Importantly, we generated positive adjusted EBITDA in Q2, 2019 excluding these non-recurring expenses, a watershed event for our company.

I want to thank all our highly dedicated employees for their hard work so far this year. It is beginning to show through in our operating results. We believe our business has strong momentum, and we're excited about continuing to improve our operating and financial results going forward.

During the quarter, I met with many clients and employees in the Asia-Pacific region, and was impressed with the satisfaction of our clients, the robustness of our sales pipeline, as well as our market position and reputation in that region. Earlier this year, market experts ranked Hudson RPO among the very top RPO providers in APAC.

We have an incredibly strong presence in Australia and China, and a growing presence in Southeast Asia via our Singapore base of operations. Turning to regional performance for the quarter, our Asia Pacific business had very strong year-on-year growth in revenue of 87%, while gross profit declined 1% in constant currency.

The revenue growth was driven by the commencement of a large MSP contract in Australia as discussed on last quarter's call. Gross profit growth in Q2 was particularly strong in Hong Kong and Singapore, with gross profit overall in Asia grown 38% driven by new client wins and strong results at existing clients.

The gross profit growth in Asia was offset by that of Australia, which was down 10% year-over-year due to weaker volumes at existing clients. The Americas had a very strong quarter with gross profit increasing 23% year-over-year, driven by new client win including a new relationship with the global industrials company which performed well in Q2.

Adjusted EBITDA of $600,000 increased from adjusted EBITDA of $100,000 a year ago. Our Europe business also had a good quarter with gross profit of 37% in constant currency. The growth was driven by both the UK and continental Europe with strong results and our businesses in Switzerland and Belgium.

I'll turn the call over to Matt Diamond, our VP of Finance to review some additional financial details on the second quarter..

Thank you, Jeff. Good morning, everyone. Our second quarter tax provision from continuing operations was $100,000. The company used $1.5 million in cash flow from operations during the second quarter.

This was due to increases in working capital needed to support revenue growth, as well as the non-recurring items in corporate cost that Jeff mentioned earlier. In addition, the company spent $230,000 in the quarter on the repurchase of 16,000 shares.

Day sales outstanding were 45 days at June, well improved from DSO of 69 days that we had at June 2018. We ended the quarter with $29.1 million in cash and restricted cash.

In April, we finalized a new credit facility in Australia to support the expected growth in working capital needs, as a result of the new client wins in that market, but we had nothing drawn on this facility at the end of Q2.

I’ll now turn the call back over to Jeff to give some more perspective on our RPO business, Hudson’s corporate costs and to review our outlook for 2019..

Thank you, Matt. We’re encouraged by our second quarter results and the momentum our business is building. We had two significant new client relationships ramp up in Q2.

The first was an RPO relationship with the global industrial company in the Americas, and the other a large MSP contract in Australia, where we’re managing the contingent workforce for a large, Asia based tech company as a household name.

We are excited to continue to partner with clients such as these, where we hope to exceed expectations and then expand our presence within their organizations. Our team is seeing great success with our land and expands strategy and is excited about increasing our business with existing clients, while also adding new client relationships.

Turning to Hudson’s corporate task, immediately following the closing of the divestitures at the end of the first quarter 2018, management review the company’s corporate cost on a line by line basis, and began to right size these costs for the new business model.

We believe the run rate for corporate cost in 2019 should be approximately $4 million, excluding non-recurring items. This is about 50% lower than 2018’s level including severance cost or about one-third lower excluding severance cost. This reduction should not impact our operating business.

In the second quarter of 2019, the company’s corporate cost included severance expense of $400,000 as well as non-recurring professional fees for legal and proxy related items of $300,000. Year-to-date, the company’s corporate cost included $900,000 of non-recurring expenses.

In the second quarter and first half of 2018, non-recurring expenses in the company’s corporate cost included severance expense of $600,000 and $2.4 million respectively. Importantly, excluding these non-recurring expenses, Hudson Global generated positive adjusted EBITDA in Q2, 2019 which is a watershed event for our company.

Turning to our stock buyback program, we continue to view share repurchases as an extremely attractive use of capital and we expect to continue to be aggressive in repurchasing shares going forward. During the second quarter, we’ve repurchased 16,000 shares for $230,000.

Since the inception of this program in the third quarter of 2015 through the end of the second quarter of 2019, the company has purchased 405,000 shares for $8 million. After the current $10 million authorization is completed, we expect to approve the new share repurchase authorization.

In addition to accelerate buyback activity at these attractive stock price levels, the company completed a tender offer in March 2019 for 247,000 shares of the company’s common stock for an aggregate cost of $3.7 million excluding fees and expenses related to the tender offer.

Turning to our outlook for 2019, we continue to expect to see greater than 10% growth in gross profit over the prior year in constant currency, while revenue growth far exceeds this rate due to the new MSP project that started in Australia in April.

Due to the operation leverage in the business, adjusted EBITDA before corporate cost is expected to grow faster than this rate.

Given this growth in the RPO business, and the reduction in corporate cost that we mentioned earlier, we expect the company to generate positive adjusted EBITDA in 2019 at the total company level and particularly so in the second half of the year. We believe investors should focus on our gross profit line in addition to our revenue line.

The reason for this is that we had a large MSP contract go live in April and Australia which we alluded to you earlier. Contracting type projects like this one, inflate revenues due to labor costs passed through.

Since the payroll costs of the contingent workforce and MSP projects are accounted for above the gross profit line, their gross profit margins are much lower than for RPO recruiting projects where the delivery costs are mainly below the gross profit line.

Including MSP and our service offering is an important part of being a total talent solutions provider and also positions us well to win new RPO business in the future, both with this new client, as well as other potential new clients. We believe another key metric to focus on is adjusted EBITDA before corporate costs as a percentage of gross profit.

Over the long term, we're targeting 20% for this metric, and mid- teens adjusted EBITDA to gross profit margins after corporate cost. Operator, can you please open the line for questions..

[Operator Instructions] Our first question comes from the mind of Josh Vogel with Sidoti & Company. Your line is open. Please go ahead..

Thank you. Good morning, Jeff and Matt, thanks for taking my questions. I guess, to start, you're doing obviously a great job adding new clients. I was wondering if you could talk to your sales and marketing efforts of late, maybe how you're sourcing these opportunities.

And also what investments you're making internally? And what you plan to do on this front over the second half? I guess when we're looking at a perspective of if you need to add personnel and perhaps where we should think about that geographically?.

Yes, good questions. So we did start last year investing in people and technology. We did increase our investment in sales and marketing. And we're beginning to see some fruits of that investment. So new clients come to us through our network, through our sales efforts; even sometimes through our website.

But it really just has to do with being in the flow of what's going on in the market, having really good relationships with the management teams of our clients. And just being positioned to win business with them, when they're ready for it. And we're -- on the people front not only sales and marketing.

We're also investing in learning and development in our team. And we get really good marks from clients on the quality of our team. And in our solutions delivery, there is a survey earlier this year that ranked us number one in the industry in terms of our client delivery capabilities. So I would say we've made that investment over the last 12-months.

We're starting to see some fruits of that investment. But we're not ramping up the investment from here. We're more harvesting the benefits of investments that have been made..

That's helpful. Thank you. When we think about the recent client wins today, notably the ones you highlighted on the Q1 call and as well as the call today. Understanding it's still very early.

I was just curious how the ramps went and are they performing in the early going up to your expectations?.

Yes, good. Again, good question. We, client ramps often are slower than what they tell us they're going to be slower than we hope or expect some time. And definitely in Q1 we had a ramp phase, where we had to put costs in front of the revenues, and the ramp was slower. So like the industrials client in the Americas.

It was really supposed to ramp in Q1, it was really slow in Q1. But then they had a really good ramp really good increase in Q2. So that really helped the Americas business in Q2, and that project is continuing to go well. Similar comments for the MSP project in April. It did start April 1st as planned.

Our team worked really hard to meet that April 1 start date. And it's gone really well so far. I would say the ramp was a little slower than we were expecting or hoping. But the relationship is incredibly strong.

And we're already in discussions about more things we can do for that client, which is exactly what we hope to achieve by taking that MSP project that started April 1. So I think that relationship will just get deeper and better overtime. And that's what we mean by land and expand our team does a really good job.

Once we have a foot in the door with a client, we typically do a good job of getting more business, getting more divisions, getting more regions. And so we're more aggressively attacking the market and doing whatever it takes to get a foot in the door with a new client..

That's great. Okay. Based on your commentary, surprised to see you saw some decent growth in the U.K. I was wondering if you could talk to this a little bit and what the dialogue is there with the clients as they can -- as everyone continues to wait and see how Brexit plays out..

Yes, another good question. Everyone is talking about Brexit, highly focused on Brexit. We haven't. So definitely clients are reticent to make huge headcount reductions. But we've had some new client wins, which have been really helpful. And I would say then the new client wins overwhelmed.

Any weakness that we had in other clients, but there's a lot of talk about Brexit, it's definitely causes hiring to be slower than it otherwise would be. But we also haven't seen any examples of things falling off a cliff or a client saying they're going to hire x number and it ends up being a fraction of that..

I got you. Okay.

I guess on the flip side a little bit, you've mentioned lower volume at existing clients in Australia and I'm just curious was that across the bulk of the client base? Or was it a few select accounts? And is it, maybe, indicative of something macro going on within the region?.

Yes, good question. So in Australia, we're really strong in financial services. We're very, very strong in pharma. And then we have a new sector that just started in 2018 doing government projects. So we definitely saw lower volumes in financial services, which I do think is maybe due to some macro factors, slowdown in Asia, slowdown in China.

That said in financial services, they are starting to benefit depending on which company it is from lower interest rates. So the Central Bank in Australia lowered rates twice in the second quarter, I believe, and commercial banking activity is up, mortgages are up; refinancings are up, is more than transactional capital markets activity was down.

Those kinds of roles were down in the first half of the year, particularly in the second quarter. Pharma was very, very strong for us in Q2. So in Australia, so they haven't seen any hick-up at all, as you might expect because pharma is not so cyclical not so tied to the economy.

And then the government sector, we had a really large project last year that ended in Q2, we have more projects in the Q that we have one are in the process of winning. So this is a really important sector for us. It's going to be a sector.

I think we'll just get bigger and better end, but the nature of government projects is it tends to be project oriented, department oriented.

You typically will do a project and then move on to the next department or the next project, as opposed to like a pharma client who's going to hire 500 people a year, year in year out, just the government sector works differently.

So long way to answer to your question, but the Q2 weakness in Australia was financial services and government but pharma did well..

That's very helpful. Thank you. If I could just sneak in one more, I guess.

Staying I guess in the macro theme, I'm curious what the dialogue is with clients today worldwide? What's top of mind to them, are they more focused on finding the talent? Or are they turning more attention to retaining their existing employees? I'm just curious what you're seeing and hearing from existing clients as well as prospects?.

Yes, both are really important. Unemployment despite economic uncertainty, unemployment rates are low, all around the world. And it's true in the US, the UK, Australia, Hong Kong, and there is a war for talent, and we, we do our best, we're the best fit for professional roles.

So financial services, pharma are two great examples where talent is everything to their business, if they don't hire the right people then their business doesn't perform. It's a very different partnership than filling in more factory type of roles or non-professional roles.

So our clients are highly focused on procuring the right talent, and also retaining the right talent. So both are really important. So everyone's kind of watching and waiting. And you do have macro uncertainty out there. But in terms of our day to day operations, things are tight.

They need all the help they can get procuring and retaining the top talent..

Thank you. And our next question comes from the line of Eric Miller with Heartland Advisors. Your line is open. Please go ahead..

Yes. Good morning, Jeff. Congratulations in all the progress. Actually, Josh stole my question. So I'm good. But thanks a lot..

Our next question comes from the line of Mark Bishop. He's a private investor, please go ahead..

Good morning. Can you hear me? Yes, good.

I wondered did you say that there was a project that rolled off second quarter in Australia? And did you say that there were new ones starting? And when would those start? And secondly, I was wondering about whether you've seen any impact in Hong Kong with all the situation there? Or if there's any positive or negative impacts from? Or if you have any business in other Asian countries including other parts of China and ones outside of China? Whether anyone's using your types of services or you're exploring that or what the outlook is in -- so in Hong Kong and China and in other areas outside of Australia?.

Sure. Yes, let me take a stab at that. And then if I don't fully answer your question, you can follow up. So in China, we're particularly strong in pharmaceuticals. And that is a growing business in China and it doesn't seem so tied to the economy or seems cyclical. We hire a lot of sales roles in particular is strength of ours in China.

So we haven't seen weakness there. And Hong Kong, we're closely monitoring that situation. Q2 was good in Hong Kong, and what we find about Hong Kong is that, yes, they do work for clients in Hong Kong, but many of the businesses that we serve in Hong Kong, they're really operating in 10 to 15 countries throughout Asia. And Hong Kong is the hub.

And so a lot of the hiring managers and teams that we work with and a lot of our clients, yes, they're based in Hong Kong. Yes, they do hiring in Hong Kong, but we're really helping them across all of Asia. And then we have an emerging presence that we're very excited about in Singapore and Southeast Asia.

That's been an area of focus of ours over the last year and we are starting to see some good traction there. Some good wins there starting from a small base, but we're very excited about Singapore and Southeast Asia as a growth focus going forward.

And on the government work I was referring to, we had a big government project in Australia that ended in Q2 of last year. We have subsequently one additional project that was smaller. And it just tends to be very project oriented work. We continue to win new business.

I was just trying to make the point that it's lumpy, much lumpier say than a pharmaceutical company that hires, some of our pharmaceutical companies in Australia, China, hire 500 people a year in, year out or 1000 people a year in, year out. And it's very steady Eddie type of work.

And I was just pointing out that other sectors like financial services and government tend to be more lumpy..

Okay, great. That's terrific color. Thank you very much.

On your -- I was wondering if you could comment on the prospects or your progress in finding acquisition targets?.

Sure. Yes. Good question. So we are -- we have a very high bar for doing something. And we have started to look. And it's got to be something that is just really; really compelling that adds something to our existing portfolio or existing company.

Our main area of focus is internal investments, like what I've talked about with sales, marketing and technology. And we are looking at bolt-on acquisition opportunities.

But it's got to be something really unique in special where we can strongly make the case that target inside of our company; we could double or triple their business because it would be part of Hudson RPO. So it's got to bring something really special and unique.

Geography, we're not in a sector, we're not in some sort of technology expertise, maybe that we that we don't have. We're not looking to get bigger, just to get bigger..

Okay, great.

Sounds like you may not have anything here, but you're looking this starting off?.

Yes, well, we'll see. Just in general, I would say, sellers’ expectations are higher than they used to be. So, a, we have to find something that's really compelling and makes a lot of sense, and is very creative, but b, takes a willing buyer, willing seller, you have to agree on a reasonable price and reasonable framework.

So we're not going to go crazy. And we strongly believe in the walk runs sprint philosophy. And so if we do something, it's likely to be small. See how it goes. And then we can think about doing a second one..

Okay, great. Thank you. And then the last thing is on the buyback. You did a little bit this quarter.

Is there, given what you've already done this year, is there some way to think about the limit on how much you can do without losing your NOLs?.

Yes, good. Good question. So we for many years, well, for some time now and had purchase plan in place a 10b-5, we take advantage of the 10b-5 exemption. So we have a plan that's on autopilot that just buys in the market every day. And there are all these complicated rules about how much volume can be bought and even time of day uptick.

There are complicated set of rules that the trader has to follow there. So we're in the market, buying every day, we think our stock is very attractively valued. So we think it's a really good use of capital to buy back stock, and shrink the share account over time. And then we'll be opportunistic.

So earlier this year we decided to do a tender offer for up to 10% of our shares. And it was about close to 80% subscribed. And so that was a one-time sizable reduction in our share account. That's on top of the ongoing buyback plan that we have this on autopilot..

Okay, great.

So is there any way you can quantify how much you would allow to buy under that program? Or does it depend on the market volume or it's too difficult to figure out?.

Well, what I would say is that we're in the market every day. There are restrictions, volume and price and time of day restrictions. So each day is different.

But the strongest statement I would make is that we think our stock is very attractively valued, we've been buying stock, we have significantly reduced the share count over time, and we have a $10 million share repurchase authorization in place. And we've done $8 million on that plan. So we are working towards completing that plan.

And we fully expect to initiate a new plan when the current plan is completed..

Thank you. And we have a follow-up question from the line of Josh Vogel with Sidoti & Company. Your line is open. Please go ahead..

Hey, thank you. You actually just hit up a bunch of my questions on the buyback and acquisition pipeline. So I just maybe a quick one for Matt.

Seeing the drop in the DSOs sequentially in year-over-year, I was just wondering is that a function of the MSP contract? Can you use just talk to why that declined the way it did?.

Yes, no, I wouldn't say it's a function of MSP. I would say that it's a concentrated effort for us to improve on collection times in certain markets. I don't want to go into the markets too much, but there was a focus to try to reduce it.

And we were cognizant of that this is an area where we could work on and make some progress, and I think we've made a lot of progress since like I said since Q4 and since Q1 as well, there was a significant reduction in Q1, earlier around 64. So getting down to 45 is a big win for us. And it's definitely due to AR collection efforts..

Thank you. And I'm showing no further questions at this time. And I would like to turn the conference back over to Mr. Jeff Eberwein for any further remarks..

Well, thank you, everyone for joining the call today. Thank you for your interest in the company. And we look forward to further progress on our efforts to grow the company, grow our earnings and cash flow from our RPO business. And further reductions in corporate costs. So we look forward to talking to you next quarter..

Ladies and gentlemen, thank you for joining the Hudson Global second quarter conference call. Today's call has been recorded and will be available on the Investor section of our website, hudsonrpo.com. This does conclude today's program. And you may all disconnect. Everyone have a great day..