Good morning, and welcome to the Hudson Global conference call for the Third Quarter of 2021. 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 constant currency, 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'll start by reviewing the third quarter 2021 highlights and Matt Diamond our CFO will provide some additional details on our financial results. I'll then give an update on current business conditions.

For the third quarter of 2021, we reported revenue of $45 million, up 72% year-over-year in constant currency. Adjusted net revenue formerly referred to as gross profit was $18 million and increased 93% year-over-year in cost and currency. SG&A costs were $15.1 million in the third quarter, up 51% versus the same period last year in constant currency.

We reported adjusted EBITDA of $3 million, up from an adjusted EBITDA loss of 700,000 a year ago. In addition, we reported a net income of $1.5 million, or $0.49 per diluted share, versus a net loss of $1.2 million or $0.41 per diluted share in the same period last year.

We reported adjusted net income for diluted share of $0.78 in the third quarter 2021, versus an adjusted net loss per share of $0.38 a year ago. I'll now turn the call over to Matt Diamond, our CFO to review our financial results by region, as well as some additional financial details from the third quarter..

Thank you, Jeff. And good morning everyone. Our Asia Pacific business grew revenues 58% and adjusted net revenue 54% in constant currency. Adjusted EBITDA of 2.2 million increased from adjusted EBITDA of 900,000 a year ago.

Our Americas business grew revenue and adjusted net revenue 280% and 315% in constant currency, respectively, with over 40% of this growth attributable to organic results, while the remainder was due to the acquisition of the COIT Group. Adjusted EBITDA of $1.4 million increased versus last year's adjusted EBITDA loss of 800,000.

Our EMEA business grew revenue 39% and adjusted net revenue 22% in constant currency. Adjusted EBITDA of $0.2 million in Q3 2021 increased compared to breakeven adjusted EBITDA in Q3 of last year. Lastly, we believe it's important to highlight that adjusted net revenue grew at a faster rate than s G&A across each of our three regions, in Q3.

This operational leverage we are seeing is critical to achieving our goal of growing adjusted EBITDA before corporate percentage of adjusted net revenue to 20% over the long-term. Turning to some additional financial details from the third quarter, we ended Q3 with $26.5 million in cash and restricted cash.

Days sales outstanding was 39 days at September 2021, in line with DSO we had at September 2020. In connection with the acquisition of the COIT Group in the fourth quarter of 2020, our balance sheet as of September 30th 2021 reflects 2.1 million of goodwill and 1.2 million of net intangible assets.

The company's working capital excluding cash increased to $5.7 million in the third quarter of 2021, from $4.5 million at the end of 2020. 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 Q3. The company generated $2.3 million in cash flow from operations during the third quarter. I'll now turn the call back over to Jeff to give some more perspective on our RPO business and to review current trends in our business..

Thank you, Matt. In the third quarter of 2021, we saw activity levels continue to rebound globally off the trough created last year by the COVID-19 pandemic. Our teams have capitalized strongly on this resurgence in demand for our services.

Our business exhibited very strong growth in revenue, adjusted net revenue and adjusted EBITDA across our three regions in the third quarter of 2021 versus the prior quarter. This growth was particularly strong in Australia and the Americas, whose economies have reopened and rebounded more so, than economies and other areas.

I'm proud to say that in Q3, the company recorded his strongest levels of growth and profitability of any quarter, since its reorganization in early 2018. I continue to be particularly encouraged by the success and collaboration of our sales teams globally, as our new business pipeline remains robust and growing.

COIT Group our 2020 acquisition has significantly outperformed our expectations this year. And we're very excited to see what Karani our new 2021 acquisition announced earlier this week, we'll be able to do as part of Hutson RPO.

The additional Karani will enhance Hutson RPOs global delivery capability and open up opportunities to win new business in India and other new markets.

As a combined company, we expect to expand Karani’s offering beyond the U.S., leverage the capability of the Karani team for Hudson RPO projects and clients, penetrate our enterprise RPO markets in India and the Philippines and strengthen Hudson RPOs expertise and technology recruitment.

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

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

Yeah. Absolutely [Operator Instructions] Your first question comes from the line of Josh Vogel of Sidoti & Company. Your line is open..

Thank you. Good morning, Jeff and Matt. I hope you guys are doing well. I got a bunch of questions here. First, I just had a couple on Karani. Just, kind of, some housekeeping type items.

I was curious if you could discuss the timeline to fully integrate it any near-term costs that may be involved as well? And then also just what type of revenue profile they've done over the last 12 months? And I know that we'll see inherent efficiencies emerge over time, just like we have to equate, but what was the margin profile on Karani’s business versus your legacy business? Thank you..

Yeah, sure. Thanks for the question, Josh as always. So we think the integration will be pretty seamless. They have existing clients, existing revenue, I think they have about 150 clients. And Hudson RPO actually became a client earlier this year, before we acquire them, and so we already started a nice working relationship together.

And I think we mentioned in our press release that it's going to be creative on day one. And interestingly, the financial metrics are very similar to the COIT acquisition that we made about a year ago.

We filed an 8-K earlier this week with a Karani acquisition and inside the 8-K you can see that the purchase price was roughly $8 million, $6 million cash upfront that we paid at closing on November 1st, and then another $2 million that comes over time. And that's roughly the same purchase price as we had for COIT.

And the financial numbers are similar in terms of the EBITDA contribution that we expect, like if you go back to the COIT deal, we bought it in October 1st of 2020. And the expectation was $2 million of EBITDA in 2021.

And they've surpassed that this year, which is really great to see, and it gave us confidence to do acquisition number two, and that's roughly the same number we're expecting for 2022 for Karani..

That's helpful. Thank you. I wanted to shift gears a little bit. You talked about the robust and growing new business pipelines, so just few questions around that. I know that it's across the three regions.

But are there any -- and you mentioned Americas and Australia? But are there any sectors that you're seeing the most end market demand today? And just a little bit higher level, any changes you're seeing in sales conversion ratios, the length of a sales cycle, the scope of the work or duration of engagements? Thank you..

Yeah, no, really good questions, Josh. I would put it, there's so many different categories and ways to describe it. But one thing we're seeing in the, I guess, you could call it the middle market, or medium sized company market is, speed is incredibly important. And that's really driven by technology companies and life sciences companies.

And that's where we saw the strongest growth coming out of the downturn, particularly in the Americas was those two sectors, tech and life sciences. And there the sales cycle can be, the conversion can be very quick. And it's all about having the capability being able to start working for the client, as soon as possible ramping quickly.

And as an example of that, what we've been able to do with COIT inside of Hudson has really been encouraging, it really has been -- we joke that we look for one plus one equals three in acquisitions, and that one has been more like one plus one equals five. We've been able to do a lot more together than either one of us could.

Separately, I think their employee count at the time we acquired them was in the 20s. And it's already -- we've played triple that over the last year.

And it looks like by the end of this year, entering next year, we'll have 100 people on the COIT team that's largely focused on tech, and we've launched some larger accounts, fast growing accounts, and it's very exciting to see what we've been able to do together. So that's kind of one category.

The other category are more traditional Hudson clients, which is the Fortune 500. These are these are typically global multi-national companies. Our strength historically has been in healthcare and financial services. And now we're adding tech and some other sectors. And the dynamic there is different, they are coming out of the downturn.

But those companies see their need for a partner like us, more so than they ever have before. If you think about what we've been through over the last couple of years with dealing with COVID and ramping down the workforce and remote work and ramping back up the workforce, and then heightened awareness of diversity and inclusion initiatives.

The typical Fortune 500 company realizes that they need a partner, need an expert. Also there's so many technology tools these days, and we're experts in all those technology tools and we're good at helping clients navigate which one of those tools are the best ones for them.

And so we've really deepened our relationships with clients, won new clients, and really become an even more trusted partner with some of those clients, which is a really good position to be in..

I appreciate all those insights. I had a question on when looking at RPO recruitment, adjusted net revenue surged last quarter of about 3 million sequentially. If I'm doing my math, right, America's making up two-thirds of that sequential improvement.

Was that all COIT and the traction, you're getting tech, or you’re also seen the traction in the legacy business there?.

Yes, no, it's really both. It's good traction in both. We had a legacy business. We had a pharmaceutical clients that does do some work associated with COVID. And we used to work for them in several countries, and we've kind of doubled our business with them in North America. And that really just is ramping up in Q3 and in Q4.

And so that was a nice kind of expansion with an existing client. So, we're seeing really strong growth on both of those jobs..

All right, great. And I just want to switch over to the contracting work. You're one of the few companies out there that really powered through the pandemic, and we're still seeing really good growth there.

I was curious, you know, is the bulk of the growth they're coming from new business, or is it increasing activity and hires within the existing base are really just a good mix of both?.

It's mainly new business. We -- and it's mainly in Australia. And it really has to do with the separation that we made 3 years ago from the recruitment agency businesses. We made a strategic decision to re-enter the contracting business in Australia and we had a lot of relationships there. And it's one of those situations where success begets success.

And we talked about landing a contracting project with a large technology company that's headquartered in Asia Pacific. And we've won new business since then that's -- that's like that and it's heavily in Australia, we think we have number one market share in Australia. And it's just one of those situations where success begets success.

And we'd like to replicate that in other markets. But if you look at our numbers, most of our contracting businesses in Australia..

Right, Okay. And just last one for me, if I could squeeze it in.

Hearing commentary from a lot of other companies, just want to hear your thoughts, both at the recruitment and contracting business, can you talk a little bit about the pricing environment and then at the client level, what impact wage inflation may be having on their business? And as well as, how that comes into play when you're looking to help them step up?.

Yeah. No, it's a huge issue across the board. But it stems from an issue below that issue, which is just finding enough talent and the right talent to meet the needs of the business. Every region, every sector, I would say is trying to hire, trying to add talent, and struggling to do so.

And that's where the need for a trusted partner like us comes in and it's helpful. It's good for what we do. But we think though -- the wage inflation stems from that kind of lack of workers. And one thing we've noticed that hasn't gotten a lot of press is that many countries around the world historically have had immigration flows.

The US is like that, the UK is like that. Australia is like that. And that's basically stopped for 18 months now. And you know, everything is reopening and the supply workers isn't what it used to be. .

Yes, that makes sense. Well, I appreciate you taking all my questions..

Thanks, Josh. Good questions..

Your next question comes from the line of Adam Waldo of Lismore Partners. Your lines open..

Good day, Jeff and Matt. Thanks very much for taking my questions. I hope you can hear me okay..

Sure Adam..

Okay. So really a very strong quarter. Congratulations to the whole Hudson team on that. And I wonder, we find yourselves, really with a high class problem, as I say right now assuming reasonably good visibility and sustainability of the ongoing business operating results.

So let's talk about the sustainability, if we may have the business operating results within the high class capital allocation problem that you have capital allocation opportunity that you have, in that context. You did 18 million of net revenue in the latest quarter, and obviously have chronic layering.

And on top of that, here from November 1st so, how comfortable are you, given that you come pretty much roaring out of the pandemic? How comfortable are you with the visibility and sustainability of that revenue on a quarterly basis and that $18 million range that you just posted?.

Yeah, it's a very, very comfortable for the foreseeable future. There's always things that could come out of left field, research into the pandemic or economic downturn. And it's so hard to separate these with precision. But there's a cyclical aspect and a secular aspect. And, of course, we're very excited about both.

But – the secular aspect is, we do think in a normal economic environment, the RPO business should grow about 15% a year. That's what the industry consultants say, I think one's as high as 18%, and others might be in the 11%, 12% range. But that's kind of the consensus.

And there's – there's good reasons behind that you know, is that a scientific forecast? And no, it's not, it's their best educated guess. But there's a lot of strong reasons behind that. And we expect to participate in that growth. And we have a goal of gaining share. But we want to at least grow with the market, i.e. maintain share.

So we think there's an underlying secular growth trend year, for the next few years, maybe the next five years of an industry growing 15% a year. So that's kind of point number one. And then the cyclical aspect is, we had a cyclical downturn in 2020.

Because of the pandemic our business mix, helped us really well, just being focused on the healthcare sector. And then even within financial services, it's a very diversified suite of companies and in financial services, not all investment banking, for example.

It's insurance companies, pension funds, its banks it's a wide variety of financial services. So we think the business held up pretty, pretty well in what was a cyclical downturn. And now we're having a strong rebound out of that. And so it's really the cyclical on top of the secular for right now, for the foreseeable future.

And I'm sure we'll have another cyclical downturn at some point in the future. And we will deal with it similar to how we dealt with it last year. But we are really hopeful that, that secular trend is, is there the way the industry forecasters say it is, it's certainly what we're seeing. And it makes a lot of sense..

So very well stated, that'd be clearly a gross cyclical business model with both drivers really firing at this point. You have about $26 million of unrestricted cash at the end of the quarter $20 million net of what you're paying up front for karate.

And if we sort of start with the $26 million of net cash, obviously, it's not a lot today, but you're still you know, trading on if we net out the cash, you're trading on an equity market value, based on 3 million shares of about $40 million dollars.

And given your comments on the near to intermediate term visibility and sustainability of your run rate revenue, you have a business that's doing in the vicinity of 8 million, 9 million a year of run a free cash flow and EBITDA and $11 million to $13 million range if I'm extrapolating fairly from the quarter.

So is that a fair extrapolation? And if it is, you're able to repurchase your stock at year one, cash on cash return in the 25% range you're able to acquire very attractive businesses like with Karani, year one cash on cash returns somewhat lower, but with good growth prospects.

So how do you think about sort of, capital allocation between those two opportunities given the high class problem you face?.

Yes, I'd say it's a really good question. And it's -- and that's again, kind of part art, part science. And so far, we haven't had to choose between A or B or C. We've done D all the above. We have bought back a significant amount of stock. And we think we've been opportunistic on that.

We did a tender offer at $15 a share, a couple years ago, and that's when numbers were lower. And were valued type investors. And so we wouldn't have done it at $15 a share if we didn't think the stock was cheap. And that that was added, added net asset value per share doing that.

And then, in the midst of downturn, we were able to buy about 9% of the company at a stock price that was below cash per share, which you don't see very often. So we've liked doing buybacks historically. We would hope to do buybacks again, in the future.

The tricky thing is that the window is closed a lot of the year, and then it was closed with this Karani acquisition that we just announced. And so you know, the, the window is not always open. But that's a tool in the toolkit that we have done in the past. We've also paid dividends a couple times in the past.

And we're continuing to look for bolt-on acquisitions. I think in a perfect world if we found interesting businesses to buy and it was clearly one plus one equals three, maybe we would do one of these bolt-ons a year. But we don't have to do anything. We're super excited about the two that we've done over the last 12 months.

We'll continue to look it's been helpful to us to be in the market and looking, but we don't we don't feel like we have to do anything at all. It's more, you know, if the right, if the right one comes along, that's really accretive. Not just on the financial metrics, but to our business and to our clients. Will strongly give it a look.

And so what a long winded way of saying I think the future will be like the past will those are all tools in the toolkit, and we're going to look at all of them and, and just be opportunistic..

So final one, I appreciate it -- just finally want to feel, permit me. 1.7 million on the existing buyback authorization of 10 million, you've obviously bought back very thoughtfully and intelligently are achieving good returns on those buybacks.

They're risk free, essentially, right? I mean, if you can get a 25% risk free return, buying back your stock, ignoring the future growth. I should say 25% yield on cash and cash return ignoring the future growth of that business. That's a homerun. Right. So we're getting close to the end of the existing buyback.

Is it fair to for investor that we can expect the board to sort of authorize a new buyback authorization as you complete this month given where the valuation of companies stands?.

Yes, I think that's a fair assumption. We we've talked about that. We think stock buybacks are a really good tool to have in the toolkit. So it's a board level decision, not a management decision, but the expectation would be we want to have that tool in the toolkit. So when we complete the existing plan, I would expect us to institute a new plan..

Thank you very much. And continue to good success..

Thank you..

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

Hi, Jeff..

Good morning..

On -- start two different sets of questions, one on Karani, one on COIT. On Karani, on the 8-k their employees which is the fair number are largely in Asia, India and the Philippines. And then there's a periodic reference in United States.

Is their business at this point largely in Asia?.

Yeah, it is a little complicated. So the clients are in the US. And the clients are typically staffing firms and recruitment agencies. And then we became a client earlier this year and they didn't have any other RPO clients, we're the only one. So the clients are in the US. The headquarters is Chicago.

So the sales team is in Chicago, the management team is in Chicago. But the employees who do all work are in India and the Philippines. So think about it like an India operation for those staffing and recruitment firms that don't have that in house..

Okay.

So they're making calls or contacting people, and it's not a back office service?.

Well, they do a lot of sourcing, finding candidates, helping onboard those candidates, screening candidates. And they also have a day shift and a night shift.

So like if you think about a staffing firm in the US or a recruitment firm in the US, they're constantly looking for people, constantly looking for good candidates to then place with their clients and having 500 people in India who can help you overnight, while the US is sleeping. Makes your team more productive, more efficient.

And that's the value add of the service..

Okay. Which actually is a lead in although it was meant to be, which has value add? On COIT, I was surprised that how significantly you've increased the number of employees there.

It's a two-part question, one, how do you find large numbers of employees that fit what you're looking for at COIT? And secondly, if -- or how do those new employees or what are they doing to generate revenue?.

Yeah. So the -- a few things there. And the pandemic was an awful event for the globe. And I don't want to minimize the human suffering there, but there's been a big adjustment, because of COVID.

In that technology companies who used to have all the employees in the office, and then switch to all the employees working remotely, are much more open-minded than they were before about having people work in a center-of-excellence rather than after offices. And it is incredibly hard to find people in Silicon Valley.

And if you do find them, there's heavy demand -- heavy poaching of good people. And so we've been able to staff those accounts. So, clients are -- Silicon Valley, but we've been able to find very talented recruiters and at our center in Tampa, we found a lot of people in Canada, but really all over the country in St. Louis, Arizona.

And so we've just collected -- and this is what we do. We're experts at recruiting recruiters. And we've assembled some very experienced tech recruiters all throughout North America to serve the clients, and that's really what's led to the growth..

Okay. Think of it that way. I thought of all those people out on the West Coast, it's a pretty impressive achievement finding that many people, but it will make sense what you said.

And -- the only other question and you answered it, but I tend to ask the same question repeatedly, just because I like hearing it, which was the last speaker, it was nothing -- excuse me in this quarter, that was significantly unusual or atypical? And therefore -- and I know you've answered this already, but I'll make you do it again, in looking at this, seasonality et cetera, but in the intermediate to short-term, this is a reasonable base to look at broadly as the operating level pre [indiscernible] of the business..

Yes, unless there's another downturn of some sort, economic downturn COVID or other natural disaster downturn, but we think our business has really solid momentum. A lot of the things that -- the numbers tell the story, but with the lag.

A lot of these things have been in the work -- in the works for some time, and it's nice to see a plan coming together. And there is some seasonality in our business. I mean, we do tend to see the fourth quarter. You have holidays, you know, fewer hours work. And then the first quarter is particularly slow for us because of our Asia-Pac exposure.

sounds odd to us in North America, but Australia's basically at the beach from Christmas through mid-January. And Chinese New Year, which slows down our China and Hong Kong operations, but we keep winning new business. Revenues are increasing and we think we're going to continue to see good growth going forward.

So, in other words, despite slowdown from holidays, Q4 should be better than Q3 and 2022 should be better than 2021. That's what we're seeing..

Thank you and congratulations..

Thank you..

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

Well, thank you for joining us today and for your interest in Hudson Global. Feel free to contact us anytime using the contact information found in the press release or on our Investor Relations website. We look forward to next quarter's update call. Thank you for your time today..

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