Good morning, and welcome to the Hudson Global Conference Call for the Third Quarter of 2022. Our call today 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 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 our call. I will now turn this 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 2022 highlights, and Matt Diamond, our CFO, will provide some additional details on our financial results. I will then give an update on current business conditions.

For the third quarter of 2022, we reported revenue of $49 million, up 16% year-over-year in constant currency. Adjusted net revenue was $24.2 million and increased 42% year-over-year in constant currency. SG&A costs were $21.2 million in the third quarter, up 49% versus the same period last year in constant currency.

We reported adjusted EBITDA of $3 million, up 8% in constant currency versus a year ago. In addition, we reported net income of $1 million or $0.30 a share versus net income of $1.5 million or $0.49 per share in the same period last year. Also, we reported adjusted net income per diluted share of $0.58 in the third quarter versus $0.78 a year ago.

In the third quarter of 2022, we repurchased approximately 1.1 million of stock. Since the beginning of 2019, we've reduced the company's share count by 13%, and we continue to view share repurchases as an attractive use of capital. We have 600,000 remaining under our 10 million common share repurchase program.

I'll now turn the call over to Matt Diamond, our CFO, to review our financial results by region, as well as provide some additional financial details from the third quarter..

Thank you, Jeff, and good morning, everyone. Our Americas business grew revenue and adjusted net revenue of 69% and 70% in constant currency, respectively. Adjusted EBITDA of $1.8 million increased versus last year's adjusted EBITDA of $1.4 million.

Revenue for our Asia Pacific business was roughly flat year-over-year in constant currency and adjusted net revenue grew 12% in constant currency. Adjusted EBITDA of $1.7 million decreased from adjusted EBITDA of $2.2 million a year ago. Our EMEA business grew revenue of 36% and adjusted net revenue 51% in constant currency.

Adjusted EBITDA of $0.4 million in Q3 2022 increased compared to adjusted EBITDA of $0.2 million in Q3 of last year. Turning to some additional financial details from the third quarter. We ended Q3 with $22.7 million in cash and restricted cash. Days sales outstanding was 50 days at September 2022, up from DSO of 39 days in September 2021.

In connection with the acquisition of Coit Group in the fourth quarter of 2020, Karani in the fourth quarter of 2021 and Hunt & Badge in the third quarter of 2022, our balance sheet as of September 30, 2022 reflects $4.9 million of goodwill and $4.8 million of net amortizable intangible assets.

The company's working capital, excluding cash, increased to $10.2 million in the third quarter of 2022 from $7.8 million at the end of 2021.

As a reminder, in April 2019, we finalized a 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 used $0.1 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..

Thank you, Matt. In the third quarter of 2022, our business exhibited solid revenue and adjusted net revenue growth versus the prior year quarter, while adjusted EBITDA remained flat year-over-year.

The third quarter's results were impacted by less favorable foreign exchange rates, a reduction in project RPO work and a slowdown in hiring activity in the technology sector, which is expected to continue into next year.

Despite these headwinds, activity at most clients remains robust and our sales pipeline is heavily focused on the health care sector. We're confident in our ability to manage the business in this environment, and we remain well positioned to respond to the needs of our clients going forward.

Further, I'd like to emphasize that our enterprise RPO work, which comprises approximately 75% of our business, is holding up very well. That said, we did have temporary operational challenges at 2 of these clients in the quarter, which have since begun to abate.

The remaining 25% of our business, which consists of recruiter on-demand work for the technology sector and project RPO work, is where we have begun to see a general slowdown. Our teams have responded accordingly to these market changes to protect our profitability and also position the business to respond quickly when these conditions reverse.

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?.

[Operator Instructions] Our first question comes from Edward Reilly with EF Hutton..

Jeff, in light of the challenging labor market currently, I was wondering if you can maybe talk about the company's cost structure in terms of fixed first variable expenses..

Sure. In a way, all of our costs are variable because it's all people. Probably a way to think about it is the overhead we have in management, sales and marketing that is fixed in the short term, but doesn't have to be over the medium to longer term. A good rule of thumb that we use is about 70% of revenue equates to variable costs.

So in other words, if we add an extra $100 of revenue, we add about $70 of variable costs and no fixed cost. So that's one way to think about it. I hope that's helpful. And I would say, look, our labor markets are tight, both for our clients and for us, particularly in the main markets we're in, which is U.S., U.K. and Australia.

And compensation levels are up, which enables us to increase prices over time, but that happens with a lag. We typically have 3-year contracts, particularly in the enterprise RPO business.

And although we do have some automatic price escalations that are tied to CPI, most typically is not until the contract comes up for renewal can we enter into those pricing negotiations. And given that the cost of recruitment professionals is much higher than it was pre-COVID. We do think we'll have an ability to increase prices going forward.

Matt, any detail on fixed versus variable costs and how different ways to think about that?.

Yes. Most of our fixed costs, we consider are within corporate as well. And one of the things that we've done over the past several years is bring down our corporate cost to around the $4 million mark, where it had been significantly higher over the past several years.

So that's why we feel fairly confident in the ability of that 70% variable with 30% continuing to flow down to the margin that Jeff was talking about..

Okay. Got you.

And just given the forward projections of unemployment creeping up, I was wondering how you maybe see this environment from an opportunistic standpoint, maybe on acquisitions or how the business might look maybe coming out on the other side?.

Sure. What we're seeing right now is more opportunities for enterprise RPO, and this is typically with bigger companies, Fortune 500 companies. This is our bread and butter business.

And if you think about what the typical big company has dealt with over the last 3 years, they really see their need for a partner like us more than ever before just dealing with COVID, ramping down, ramping back up.

And then a lot of technology tools in the marketplace, a lot of companies are much more serious about diversity and inclusion hiring goals. So we can really add a lot of value and a lot of the big companies, especially ones who have never done RPO before are much more open to an RPO solution like ours.

And then there's also some instances where their existing provider didn't perform well during COVID or coming out of COVID, and there are a few opportunities in the marketplace to take share.

And so that's going to be -- in this environment, the key focus of our growth is winning more enterprise RPO clients that those clients have been distracted and busy, and now they're really sitting down and seriously considering RPO sometimes for the first time. And then on -- and so that's about 75% of our business.

And then about 15% is project work that we do, and there was quite a bit of project work coming out of COVID, and we have seen a slowdown in some of those projects. And one thing that hurt us in the third quarter is we had some projects end early, earlier than we expected.

And then we have some new projects starting up, but there's kind of a lag there. I would roughly estimate that hurt our EBITDA by $500,000 or so in the third quarter, just kind of carrying the cost with no revenue. So there's still project work to win, but it's not as robust as it was earlier this year. And that's really the sea corn for the future.

A lot of bigger companies that have never used RPO before will hire us for a specific project, maybe it's in a particular country or in one of their divisions. And it's a great way to get a foot in the door and develop a relationship, and our team does a pretty good job of converting that to enterprise RPO over time.

And then we have about 10% of our business that is focused on the technology sector, which is a little bit different business model that's more recruit-on-demand, shorter-term contracts, and that a lot of that work that we do is for medium-sized tech companies, and in some cases, pre-IPO, and that business has declined very significantly from the peak earlier this year and unclear when that rebounds.

It will at some point. Our team would say a lot of those companies, there's a lot of hiring freezes in tech right now. It's going to be very weak in the first quarter and the beginning of next year.

But even if the environment doesn't improve, a lot of these companies are kind of overdoing it, and we'll need to start to resume at least some hiring at some point next year. But that one is tough for the call, but we do think it will come back and it will come back strong.

And a lot of those clients say, next time around that are going to rely more on providers like us and because they like the flexibility and the value of the service that we provide..

Our next question comes from Marc Riddick with Sidoti & Company..

So I wanted to follow up on sort of how you're viewing the opportunity to take advantage of rebounds going forward? Should we be in a position to do that? Could you talk a little bit about your thoughts around headcount and talent retention and the like? I mean, obviously, you communicated some of the near-term slowdown in activity.

But I was wondering if you could talk maybe about the just sort of making sure that you have enough talent to take advantage of any upticks..

Sure. Really good question. And there's a couple of levels to it. There's what's going on at our clients and then what's going on with our own talent. And on the enterprise RPO, those clients have struggled to meet their hiring goals coming out of COVID, and they've also experienced higher than normal turnover.

And what we're seeing right now is that those clients have -- still have a talent shortage mentality and a fear of slowing down if they do so, they will miss out on talent, and that will put them at a competitive disadvantage. And so we are always looking for talent ourselves. We're particularly looking to grow in the enterprise RPO segment.

And that's where when I look at our sales pipeline, it's got more enterprise RPO projects that we're pursuing and fewer project RPO-type of work and fewer things going on in the tech sector.

So we've -- we're always looking for talent for enterprise RPO and we've been able to redeploy some of the recruiters that we have that were working for technology clients. We've been able to redeploy them to life sciences, medical devices, which hasn't slowed down at all, and where we're still seeing growth.

And so we do try really hard to retain people and redeploy them into other accounts. But when business declines as much as it has, like in the technology sector, we have shrunk our headcount in that vertical..

Okay. And then maybe you could just bring us up to speed on -- I don't know Hunt & Badge, it wasn't that long ago, but I wonder if you could talk a little bit about overall thoughts on acquisition multiples in the pipeline and appetite..

Yes, sure. It's very interesting what we're seeing in the acquisition marketplace, and we're always looking for acquisitions. It's helpful to be in the market and looking.

And now that we've done 3, we've done 1 a year for the last 3 years, we're kind of a known acquirer and perhaps we're getting -- shown more deals than previously just because of that. But there are a decent number of opportunities in the marketplace. A little bit surprising to me their sales price expectations are high.

And in general, they've done well over the last 2 years. And so makes us a little worried, we never want to buy something at what could be a peak, and we certainly don't want to pay a high multiple for it. So there's -- in short, there's more opportunities out there than we've ever seen before.

But also, in general, we think their expectations are too high. So we're continuing to look. We have a list where. We're monitoring several of these situations. And we think being patient and not changing our criteria is the right way to go..

Okay. That's helpful. And then I guess the last one for me, I just wanted to sort of a similar vein as far as the use of cash. You mentioned in the press release some share repurchase activity during the quarter. You have reduced share count quite a bit over the last few years. I wonder if you could talk a little bit about that and appetite as well..

Yes, sure. We think our stock is cheap, and it's very accretive to buyback stock when the multiple is low and when it's below what we believe the net asset value to be. The tricky thing is the window being open or not. A lot of time, the window isn't open. So we did have an opportunity in the third quarter where the window was open for about a month.

It hadn't been opened in a while. And so we did take advantage of that to buy in some stock. And as you know, we've bought back stock in a lot of different ways. And our preferred way to do it, the easiest way to do it is to buy back a block, which we did during COVID.

There were 2 significant holders who wanted liquidity, and so we were able to do 2 big block trades back then, and that was much easier to execute and much more impactful than buying a little bit each day in the market. As you know, our stock is pretty illiquid. So we'll be opportunistic.

Our preference would be to buy a block if a block ever becomes available, but the window also has to be open. So we think share purchases are a really good use of capital. We expected to do more over time and we'll be opportunistic..

[Operator Instructions] our next question comes from Walter Schenker with MAZ Partners..

Two different questions. Seasonally, the third quarter, at least in Europe is -- tends to be somewhat quiet the fourth quarter, maybe not in Asia, but maybe there as well, run into some holidays.

Is the third and fourth quarters, and I realize a lot of other stuff overwhelms it, seasonally somewhat slower than the first half, you just sort of traditionally run through the quarters as to the seasonal seasonality?.

Sure. Yes. We -- usually, the fourth quarter is slower than the third and the first quarter is usually the slowest quarter of the year. I have said another way, typically the strongest quarters of the year, Q2 and Q3. I did mention in my prepared comments that there were a couple of operational challenges with 2 enterprise RPO clients.

One is implementing some new IT systems, and that caused a disruption. We're already seeing that abate in the early part of Q4. And another was a health care company that spun off part of their business. And so it went from being 1 public company to 2 public companies. And the good news there is that both remain clients and have a healthy outlook.

But that separation into 2 separate companies also caused a hiring disruption in Q3 that we also think will abate in Q4. So there's many things.

Each year is different, each quarter is different, but there's many things that will be better for us in Q4 versus Q3, except the tech sector, which we think is going to be worse in Q4 than Q3, just many, many companies in the technology sector are putting on a hiring freeze, laying off people.

And so that's going to -- so that's going to be pretty slow. So we kind of stopped giving official guidance during COVID. But when I look forward, Q4 probably is going to be flat to down versus Q3. just because of seasonality and weakness in the tech sector. And then Q1 is also -- it's typically the weakest quarter of the year.

And I would say the most optimistic thing is that big companies, the enterprise RPO clients, we haven't seen any changes there. There's still a lot of new business to win. Our new business pipeline is robust.

And for the first time, I can remember well over half of it is focused on the health care sector, which for us is typically pharmaceuticals, life sciences, medical devices and a lot of those companies have never used RPO before and are looking to use RPO or for whatever reason, they're unhappy with their provider and looking to switch, and we're aggressively pursuing some of those clients..

Good. Okay. And just on a totally different subject. First, I'd like to commend you for continuing to buy stock. It's good every day to see your form that you bought another 500 shares. I realize there are quiet periods.

But in regard to the company, I realize the company has a window and -- but it would be -- as a shareholder, I would like to hope that the goal is at least, over time, whether through blocks or in the market to offset the share creep, which is standard for almost every company.

But it would be nice, given our resources and balance sheet to -- if we have the opportunity to buyback enough stock to at least keep the share count relatively constant, just as a thought of one shareholder..

Yes. That's a good thought, and we agree..

[Operator Instructions] Our next question is a follow-up from Edward Reilly with EF Hutton..

Just another one from me. Just wondering if you could give us a breakdown of revenue by industry in the quarter and what you expect this to look like over the next few quarters, just given the robust sales pipeline, particularly within the health care space..

I don't know if Matt has those numbers off hand, but my -- with the way -- you're talking -- the question is on revenue? The sector?.

Or adjusted revenue..

Yes. So adjusted revenue is typically a quarter financial services and our financial services tends to hold up really well. Unlike some peers, we don't have a lot of exposure to the more volatile cyclical aspects of financial services. And then our second biggest sector is health care, life sciences, and tech has shrunk quite a bit.

It was maybe 20% at the peak this year, and it was above 10%, say, 12% or so in the third quarter, and it's going to be less than 10% in the fourth quarter. And then the other part of our business, so I talked about financial services, health care and in tech and everything else is, call it, 30%, 35%, and it's a collection of consumer manufacturing.

Those are the 2 main areas there..

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

Okay. Good questions, everybody. Thank you for joining us today and for your interest in Hudson Global. Feel free to contact us at any time using the contact information found in our press release or on our Investor Relations website. We look forward to next quarter's update call. Have a great day..

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