Good morning and welcome to the Hudson Global Conference Call for the First Quarter of 2020. Our call this morning will be led by Chief Executive Officer, Jeff Eberwein and Chief Financial Officer, Matt 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. These 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 and adjusted earnings per diluted share.

Reconciliations for these measures are 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 as a helpful reference guide during our call. I will now 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 will start by reviewing the first quarter 2020 highlights and Matt Diamond, our Chief Financial Officer, will provide some additional details on our results.

I will then give some perspective on how we are navigating current business conditions. For the first quarter of 2020, we reported revenue of $24.1 million, up 55% year-over-year in constant currency.

Adjusted net revenue, which we formally refer to as gross profit, was $9.8 million, an increase of 8% year-over-year in constant currency, and we grew adjusted net revenue in all 3 regions in constant currency. We saw particularly strong growth in Continental Europe in Q1.

SG&A costs were $9.9 million in the first quarter, down 7% versus the same period last year in constant currency. We reported an adjusted EBITDA loss of $100,000 compared to an adjusted EBITDA loss of $1.5 million a year ago.

In addition, we reported a net loss of $500,000 or $0.17 per share versus a net loss of $1.9 million or $0.58 per share in the same period last year. We reported an adjusted loss per share of $0.08 in Q1 2020 versus an adjusted loss per share of $0.50 a year ago.

Turning to performance for the quarter by region, our Asia-Pacific business had very strong year-on-year growth in revenue of 109%, while adjusted net revenue grew 5% in constant currency. The year-over-year revenue growth was driven by the commencement of a large MSP contract in Australia earlier in 2019, as discussed on previous calls.

Adjusted EBITDA of $600,000 increased from an adjusted EBITDA of $200,000 a year ago. Americas had an increase in adjusted net revenue of 4% in constant currency, adjusted EBITDA of $100,000 versus last year’s adjusted EBITDA of a loss of $300,000.

Our EMEA business again produced another very solid quarter with adjusted net revenue up 21% in constant currency. The growth was driven by strong results in our businesses in Continental Europe. Adjusted EBITDA of $100,000 increased from an adjusted EBITDA loss of $200,000 in Q1 of last year.

I will now turn the call over to Matt Diamond, our Chief Financial Officer, to review some additional financial details from the first quarter..

Thank you, Jeff. Good morning, everyone. Our first quarter tax provision from continuing operations was approximately $100,000. The company used $2.7 million in cash flow from operations during the first quarter. Days sales outstanding was 44 days at March 2020, well improved from DSO of 64 days back in March 2019.

We ended the quarter with $26.5 million in cash and restricted cash. As a reminder, in April 2019, we finalized a new credit facility in Australia to support the expected growth in working capital needs as a result of new client wins in that market, but we had nothing drawn on this facility at the end of Q1.

I will now turn the call back over to Jeff to give some more perspective on our RPO business..

Thank you, Matt. Turning back to our business, as disclosed in the company’s press releases issued on March 13 and March 30, 2020 as well as our 2019 Form 10-K, our business has begun to be adversely impacted by the recent virus outbreak and the accompanying economic downturn.

This downturn as well as the uncertainty regarding the duration, spread and intensity of the outbreak has led to an initial reduction in demand for our services. Some of our customers have instituted hiring freezes, while other customers that are more capable of working remotely have been allowed to operate as usual.

The expected timeline for this reduction in demand for our services remains uncertain and difficult to predict considering the rapidly evolving landscape. We are cutting discretionary costs where we can and are prepared to cut costs further to protect our business. We are trying to take a balanced approach to this situation.

We don’t want to overreact nor under react and we remain focused on our objective of maximizing stockholder value over the long term. We are vigilantly monitoring the situation surrounding COVID-19 and its impact on our business, and we will continue to proactively address this situation as it evolves.

Due to the flexibility of our workforce and the actions we have taken, we are confident we can continue to efficiently manage our business and mitigate risks in this challenging environment, while retaining the ability to meet clients’ needs when activity improves.

Importantly, I want to thank all of our highly dedicated employees for their flexibility, hard work and dedication to our clients and business in the challenging conditions we are working through.

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

[Operator Instructions] Your first question comes from the line of Josh Vogel from Sidoti. Your line is open, sir..

Thank you. Good morning, Josh and Matt. Hope you and your families are both doing well. I guess my first question is when we think about RPO versus our traditional staffing company knowing that just the headhunting side of the business is more volatile and transactional, it was cyclical.

I think it would be helpful to understand how your RPO business reacts in this type of environment and how it’s truly different from a headhunting firm? Thank you..

Yes. Thanks, Josh. We made the decision that was announced about 2 years ago to exit the recruitment agency business and focus on RPO. And the thought at the time was that RPO was a higher-growth, higher-margin business and was what was going to be the future trend that we wanted to build the company around.

Additionally, we like the fact that it was a steadier more manageable business and less volatile and less cyclical, we typically have long-term contracts, long-term clients. Our clients are big Fortune 500 type of companies that are well capitalized. Everybody is impacted by the slowdown.

But I do think in a downturn is when you can see what business model is more resilient and what business model is less resilient. And we think our business will hold up okay in this environment. We have a lot of – it’s just much better to be in a business with long-term contracts and bigger, healthier clients.

So in other words, we are not going to – we will definitely see the impact of the virus, and we’re expecting our business to decline and then rebound later at some point in the future, but it’s not going to be nearly as sharp of a V that you would see in a recruitment agency headhunting type of business..

That’s helpful. Thank you for the insights around that.

Understanding there is still a lot of uncertainty out there, but I was just wondering if you could talk about some of the trends you were seeing in your business as you were exiting April?.

Sure. Historically, we have given guidance for the year and not really given guidance by quarter, but we realize it’s a really fluid situation. Our business does operate with some lags.

So for example, the revenues that we generated in the first quarter, well, it’s really due to work and effort of our team working with our clients that in the second half of last year, we might work on their talent needs, but it doesn’t show up as revenues until those people join. So there is a pretty big lag effect to our business.

So April was better than one might think given that the whole world is on a quarantine lockdown, but the recovery for us will also come with a lag.

So I guess said another way, going back to my kind of sharp V analogy in our recruitment agency type of business, one might see a very sharp decline in Q2, coincident with hiring activity falling sharply and then they might see a sharp rebound whenever activity resumes, Q3 or Q4 whenever it rebounds.

We don’t see our business having such a sharp decline and then rebound like that..

Okay, great.

And maybe this is a little bit more for Matt, can you remind me the facility you have in Australia, just thinking about cash flow and working capital, an update on the overall liquidity position? And then maybe for both of you, understanding that you have a Fortune 500 client base that will survive what – their businesses aren’t going to go under, let’s say, but have you been having any dialogue with any clients who may be asking for pricing concessions or maybe better payment terms?.

Well, the answer to the second part is no. I will let Matt address the first part..

Sure. So for the credit facility that we entered into, that’s the ability to borrow up to AUD 4 million, and that is based on – it’s kind of a factoring relationship where we get a certain percent, I think it’s 80% of our accounts receivable invoices, that we are able to ascribe over to that bank, and then we can kind of draw on that.

So we will draw on that and then we will repay it as needed. And you can see when we file the cash flow statement at the end of the day today in the Q you will see that there is activity there. It just happens to be that at the end of the quarter, there is nothing drawn on that, but to emphasize, that’s only for our Australian business..

Okay, great.

And just lastly, following the transaction in late March, I guess kind of housekeeping, should the share count be around 2.7 million shares in Q2? And then just thinking around capital allocation is preservation your top priority right now or do you still expect to be opportunistic on the buyback front?.

Yes. I think 2.7 million is a good number to use for the year end – sorry the quarter end share count. And you can see that on our – you will be able to see that in our balance sheet, in the 10-Q that’s filed, but we do have some RSUs, so the share count on the income statement is a touch higher than that, maybe by 100,000 shares. So we are in....

Okay.

And just thoughts around capital allocation?.

Yes. Our top priority is servicing our clients. And if we do a good job for clients, that’s good for everybody. It’s good for stockholders. It’s good for employees, and it’s good for our business. So the most important thing is that we’re there to meet the needs of our clients. Managing our liquidity is also incredibly important.

And it’s in everybody’s interest for us to maintain a good business and not have a business that bleeds cash. That’s not good for anybody, including our clients. So we are doing everything in our power to protect our business. Said another way, we are going to fight extremely hard to be positive EBITDA, positive earnings and positive cash flow.

There is a lot of things outside of our control, but we are going to work very hard on the things that are within our control, and our team is doing that.

There is seasonality to our cash flows that seem to happen year after year where Q4 historically has been the best cash generating quarter of the year and Q1 is the worst cash-generating quarter of the year and we saw that again this year where we had a cash outflow in Q1. But I would encourage people to compare it to the cash outflow last year.

And we had substantial improvement year-over-year on any metric, adjusted EBITDA, earnings cash from operations. So that’s encouraging to see that year-over-year improvement..

Well, thank you for taking my questions and for all the insight and glad to hear you guys are doing well and stay safe out there. Thanks..

Thank you..

[Operator Instructions] There are no more questions on the queue. That concludes today’s question-and-answer session. I would now like to turn the call over to Mr. Jeff Eberwein for closing remarks..

Thank you, all again for joining us today and for your interest in Hudson Global. We look forward to next quarter’s update call..

Thank you for joining the Hudson Global first quarter conference call. Today has been recorded and will be available in the Investors section of our website hudsonrpo.com..