Good morning, and welcome to the Hudson Global conference call for the second 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 security 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 of 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 the call. I will now turn the conference over to Jeff Eberwein. Please go ahead, sir..

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 2020 highlights; and Matt Diamond, our Chief Financial - Chief Financial Officer, will provide some additional details on our results.

I'll then give some perspective on how we are navigating current business conditions. For the second quarter of 2020, we reported revenue of $24.6 million, down 3% year-over-year in constant currency. Adjusted net revenue, formerly referred to as gross profit, was $8.9 million and decreased 21% year-over-year in constant currency.

SG&A costs were $9.3 million in the second quarter, down 16% versus the same period last year in constant currency. We reported an adjusted EBITDA loss of $400,000 compared to adjusted EBITDA of positive $300,000 a year ago.

In addition, we reported a net loss of $800,000 or $0.27 per share versus a net loss of $900,000 or $0.29 per share in the same period last year. We reported an adjusted net loss per share of $0.13 in Q2 2020 versus an adjusted net loss per share of $0.07 a year ago. Turning to performance for the quarter by region.

Our Asia Pacific business grew 14% in constant currency and revenue, while adjusted net revenue declined 7% in constant currency. Adjusted EBITDA of $1 million increased from adjusted EBITDA of $700,000 a year ago.

I'm very proud of the results of our Asia Pacific team that they were able to generate despite the headwinds facing them in the second quarter. Our Americas business had a difficult quarter with revenue and adjusted net revenue declining 45% and 47%, respectively.

Adjusted EBITDA was a loss of $600,000 compared to last year's adjusted EBITDA of positive $600,000. Our EMEA business saw revenue decline 27% in constant currency and adjusted net revenue declined 14% in constant currency. Adjusted EBITDA of $100,000 decreased from adjusted EBITDA of $200,000 in Q2 of last year.

At the end of Q2, we consolidated management of the Americas and EMEA regions under the leadership of Darren Lancaster, formerly CEO of our EMEA business. Both Darren and the company are excited to leverage his skills and expertise to realize synergies and grow the Americas business over time.

Once this integration is fully complete later this year, we anticipate realizing approximately $1 million in annual cost savings due to this change. I'll now turn the call over to Matt Diamond, our CFO, to review some additional financial details from the second quarter..

Thank you, Jeff, and good morning, everyone. Our second quarter tax provision from continuing operations was approximately $300,000. The company generated $1.9 million in cash flow from operations during the second quarter. Days sales outstanding was 42 days at June 2020, comparable to DSO of 45 days that we had back in June 2019.

We ended the quarter with $29.9 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. However, we had nothing drawn on this facility at the end of Q2.

In April 2020, we received a loan through the SBA PPP program for $1.3 million. We intend to apply for forgiveness for this loan in the third quarter of 2020. To the extent that all or a portion of this loan is forgiven, it will be reflected in other income.

In addition to the PPP loan in the U.S., we also received government assistance in other countries of approximately $300,000 in exchange for maintaining certain levels of compensation and other costs in response to the COVID-19 pandemic. This is reflected in other income in the second quarter results.

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 current trends in our business..

Thank you, Matt. Turning back to our business. As disclosed in previously issued company press releases as well as in various SEC filings, our business has been adversely impacted by the COVID-19 outbreak and the accompanying economic downturn.

This downturn, as well as the uncertainty regarding the duration, speed and intensity of the outbreak, led to an initial reduction in demand for our services in the first half of 2020. Some of our customers have instituted hiring freezes, while others that are more capable of working remotely have been allowed to operate somewhat as usual.

The expected time line for this reduction in demand for our services remains uncertain and difficult to predict considering the rapidly evolving landscape. We've cut discretionary costs where we can and are prepared to cut costs further, if necessary, to protect our business, but we are also well positioned as activity improves.

We're trying to take a balanced approach to this situation, and we don't want to overreact or underreact as we remain focused on our objective of maximizing stockholder value over the long-term.

We're vigilantly monitoring the situations surrounding COVID-19 and its impact on our business, and we will continue to proactively address this situation as it evolves. Globally, we've now right sized the business to better match clients' needs, while retaining the ability to respond quickly as activity rebounds.

We're pleased with the resilience of our business thus far, which is a testament to the strength of our clients and the flexibility of our team. Our partnerships with our clients have deepened during this challenging time, and we're well positioned to emerge from this crisis as a stronger partner for our clients.

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

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

[Operator Instructions] Your first question comes from the line of Josh Vogel with Sidoti & Company..

Good morning, Josh..

Got a couple of questions for you here. I guess, first one is the strength we're seeing in APAC relative to the other regions.

Was this specific to your positioning there in the end markets or just at the pandemic overhang there improved earlier than the Americas and Europe?.

Yes. Really good question. I think the answer to that is both. First off, the pandemic started in China. And our China business felt the most impact in Q1 and was starting to recover at the end of Q1, and that recovery continued into Q2. And we're pretty much all back to work. Our employees are allowed to go to offices.

They have to wear protective equipment at all times, but that was the first country to rebound. And Australia had a really good quarter, but the mix also was helpful. The clients that we have there held up really well during the pandemic. One example is we have a pharmaceutical client in China whose main product deals with respiratory issues.

So that was helpful positioning. And then our clients in Australia held up really, really well in the second quarter and exceeded our expectations..

Thanks for the insight there. Maybe it would be helpful. It just takes a little overview on the business and your strongest end markets.

Obviously, you have presence in strength in life sciences and, I believe, financial and business services, what do you think is driving that? And what are some of the opportunities that you see out there in other verticals, whether it's in APAC, Americas or EMEA?.

Yes, really good question. So the way we are positioned is our specialty and expertise is on professional roles, white-collar roles. And we typically - our typical client hires anywhere from 500 to 5,000 people a year, that tends to be our sweet spot.

Smaller than that is often too small for us and bigger for that is typically some sort of global manufacturing business or a business with a lot of bodies which might not be best fit for us.

So if you think about the sectors that have a lot of people in those roles, white collar, professional, tends to be health care, that's about one-third of our business; financial services tends to be another one-third; and there's a lot of diversity within our Financial Services portfolio of clients.

And then the other one-third, I guess you could call that other, but it's everything from consumer companies, and there are some industrial and manufacturing companies in there, some food, consumer staples type of companies.

But even within those companies, we're typically filling the white-collar roles at those companies and more so than tens of thousands of people on the factory floor. I think the one vertical that we're a very good fit for that we would like to be bigger in is technology.

We do have some technology clients but it's a fast-growing space with a lot of need for our service. And so that's one that comes to mind that we think we're a good fit for and we'd like to be bigger in..

All right. Maybe digging a little deeper into the client base and the impact of COVID. You mentioned some have instituted hiring freezes, others are more capable of working remotely.

Is it possible to maybe give us a percentage of your client base that you would classify as being able to operate somewhat as normal during these times or what you saw in Q2?.

Yes. I think most of them are able to work remotely, both our clients and our team. We don't typically have a lot of clients where the employees have to physically show up at a specific location, like a factory in order to do their job. Most of our clients have jobs where they can work remotely.

I think the bigger issue, and maybe we didn't explain the super well, is how are they responding to the crisis. And there is a very small number that have had just a very hard hiring freeze on kind of until further notice, and one of those big clients was in the Americas. And so that did was one of the factors for weak Americas results in Q2.

So that's kind of one end of the spectrum, which is a really hard hiring freeze that has just got an uncertain duration to it. The other end of the spectrum is that there are a few companies that are actually doing better and are hiring more people than the otherwise would.

The vast majority of our clients are somewhere in the middle, where it's just a wait-and-see attitude. They are doing some hiring, not nearly as much as they expected at the beginning of the year.

So we have scaled back our teams, and that's one thing that clients really like about our service is that we're very flexible and we can scale up and down with their needs. So the vast majority are in that kind of middle level where they're doing some hiring, not as much as they thought, and they're just watching and waiting.

And even they don't know exactly what they're going to do in Q3 and Q4 and into 2021. So we're just staying in close contact, in close partnership with them and trying to be ready for any scenario that unfolds.

And on a side note, one hopeful thing on the other side of everything that's going on in the world is that we strongly think our clients see their need for a partner, and coming out of this will be more open-minded to partnering with us, if they're not already a partner or strengthening their partnership with us if we're already in partnership with them.

So that's one thing that's definitely emerging that we're seeing is more and more companies are just seeing their need for a partner..

I appreciate the insights there. Shifting gears a little bit. Can you just give a little bit more commentary around the consolidation of the Americas and EMEA under Mr.

Lancaster? And maybe just talk to me about the management team in general? Do you feel that you have to round it out today or any additions or changes needed?.

No, we have a really, really strong team. They've been through downturns before and know how to manage downturns. And I'm very proud of the team. We have a really, really good team. And this was situation where our EMEA business has had, really good growth.

I think it was our fastest-growing region last year, which is particularly impressive given that the market itself isn't the fastest-growing market. And we also have a very well-developed center of excellence in Scotland. In Edinburgh, we would estimate about 10% of all of our global employees are at that center.

And we saw a lot of benefits to combining the leadership of the Americas region with the EMEA region, we think there's going to be synergies that come out of that. Cross-selling opportunities where clients that we service in Americas, we can call on them at EMEA and vice versa.

So it was really just to drive greater efficiency and to drive faster growth..

All right. Great. And one last one. Obviously, you maintained very strong cash position, and I know that stock buybacks are one of your priorities.

But maybe if you could talk about the acquisition pipeline as well as any appetite you have for internal investments? And I guess when we also think about potential deals, would they potentially be more focused in the U.S.

because you have the NOL here?.

Sure. All good. All good stuff. I guess we would say, d, all the above. On the internal investments, when we made the big strategic change about two years ago to sell off the recruitment agency businesses and just focus on RPO and related businesses, we did that because we really think RPO and other managed services businesses are the future.

And we haven't been - we have been investing in that future, and those investments have mainly been in the areas of technology, sales and marketing. So we've been making internal investments all along.

We did slow that down a little bit this year due to the slowdown in business, but we're going to continue to make those investments and those position us really well for the future. They enable us to grow, and they're just flat out required by our clients. So that's one thing.

Second thing is we have long thought our stock was really cheap, really attractive. And a good use of capital allocation when a company's stock is cheap is to buy back stock. And we've pretty consistently done that in recent years and could continue to do that in the future.

And then on the last one on acquisitions, that is always tricky because it takes a willing buyer and a willing seller. And we have looked at some small targets that would be a good fit for our portfolio, and we have had dialogues with different people on again and off again.

But we're hoping that this environment will be more conducive to finding something that meets our criteria. We have pretty strict criteria. We're very value oriented. It did seem to us like we were in a seller's market. A year ago or just in recent years, sellers' expectations were fairly high.

And we're hoping that, that turns into more of a buyer's market where we can find something that's a really good addition to our business and our team, and it makes sense. Every way we look at it makes sense too, our clients makes sense to our team and makes sense to our stockholders. So that's what we're looking for..

Thank you for taking all my questions..

Your next question comes from the line of Walter Schenker with MAZ Partners..

Good morning. Hopefully, everyone's has power and Internet, which I don't have, but it depends where you are, I guess, in the Northeast or if you're not in the Northeast.

First, could you just give us your thoughts on your ability to continue to get larger, which your contracts are larger, outsourcing contracts in light of the pandemic since that has been the major avenue of growth for the company and really in a hiatus pretty much through 2020?.

Yes. Very good question and hard to answer. So as you might imagine, in an environment like this, new - most new business discussions have at least a short-term pause, big companies who are our main targets to partner with are highly focused on adjusting to COVID-19.

And that's been a distraction and has slowed down some of the new business opportunities we're chasing. But most - in most cases, it's just a delay. We don't know how long of a delay. But we definitely still have a lot of discussions with a lot of interesting prospects. We do think our business will continue to grow.

We think we're in a growth business and we think we're well positioned to grow with it. And it's very hard to quantify, but we strongly think that our prospective clients see their need for a partner more than ever before.

If you think about what a lot of them are talking about and dealing with this year, first, it was the pandemic and now it's not only the pandemic, but a lot of them are talking to us about how we can help them on things like improving their diversity and inclusiveness in their hiring.

And that's something we have a lot of expertise on and can be very helpful on, have a lot of case studies on. So like I said, it's hard to quantify that benefit, but I think that's a very real factor coming out of the environment that we're in..

Okay. And just as a statement, not really a question, but is a more recent shareholder who was in part attracted to the balance sheet and the job - the company has done a restructuring, but I'll repeat the balance sheet. I have been very pleased at the repurchase program.

And again, as a shareholder, would be very supportive, realizing all the uncertainties in the world that the company continued to buy back shares as available and if need be.

We expand the buyback, I realize, there's something left in it, as long as we're buying stock had around or below cash, it seems to me clearly accretive on a long-term basis to shareholders..

[Operator Instructions] Your next question comes from Mike Tofas [ph]..

Hey guys, thanks for the call and the comments and your efforts here. I had a question regarding client concentration. And I know from reading and listening in the past that you guide us towards gross profits.

If you look at your gross profits, could you tell us your top three clients, what percent they are?.

Yes, I don't think that's publicly disclosed anywhere. I would refer you to our 10-K where we do talk about concentration in terms of revenue..

Right. I was hoping that on this call, you could comment about on the gross profit side because I understand that the top line revenue number can be a little bit - I don't know if misleading is the right word, but if you, like, in the case you sort of guide us or on the calls, you've guided us to say, don't necessarily look at the top line..

Right. Yes. No, it's a very fair question. We just haven't publicly disclosed that. The one thing I would say is we have some very long-term relationships that we're very proud of. And in general, we get deeper and deeper with our clients over time and the relationship gets stronger and stronger. And so that's a really good thing.

But the mix has also changed quite a bit over time. So if we were to look at the top 3 or top 5 or top 10, however one wants to look at it. Five years ago, it would look different than today and could look different 5 years from now. I think the most important thing to focus on is that we're in a growth business.

There's two or three industry consultants out there. This industry didn't even exist 10 years ago - sorry, 20 years ago. It's a small industry, but it's fast-growing, and we think it's taking share.

So the industry consultants granted this as pre-COVID, forecast the industry to be growing 10% plus on an annual basis for the next few years for the foreseeable future. And we strongly expect to participate in that growth. And we're in touch with a lot of bigger companies and very hopeful that we continue to add new clients in the coming years.

And if we're successful in that, that top 3, top 5, top 10, however one wants to look at well, well look very different a few years from now than it will today..

Great, and I appreciate that. I'd ask that maybe you would consider going forward, if there's a way to look at it differently than just the top line, whether it's gross profits or something else that would be helpful as a shareholder, which I am.

One thing, I think it's fair for me to want to know would be how much risk do I have, if one client accounts for 40% or 50% of your gross profit, that's - I feel like important for me to know..

Yes. Understood. If this helps in any way, we don't have any major contracts coming due in 2020 - for the rest of 2020..

That concludes today's question-and-answer session. I will now turn the call over to Jeff Eberwein for closing remarks..

So, thank you for joining us today and your interest in Hudson Global. We look forward to next quarter's update call..

Thank you for joining the Hudson Global Second Quarter Conference Call. Today's call has been recorded and will be available on the Investors section of our website, hudsonrpo.com..