Hudson Global Q2 2023 Earnings Call Transcript

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August 10, 2023

There are 4 speakers on the call.

Operator

Good morning, and welcome to the Hudson Global Conference Call for the Second Quarter of 2023. 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 ks filed today and in our other filings made with the Securities and Exchange Commission, including our annual report on Form 10 ks.

Operator

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.

Speaker 1

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 Q2 2023 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 Q2 of 2023, we reported revenue of 45,000,000 down 18% year over year in constant currency.

Speaker 1

Adjusted net revenue was $23,000,000 and decreased 15% year over year in constant currency. SG and A costs were $20,000,000 in the 1st quarter, down 5% versus the same period last year in constant currency. We reported adjusted EBITDA of $2,600,000 down 52% in constant currency versus a year ago. In addition, we reported net income of $600,000 or $0.18 per diluted share versus net income of $3,100,000 or $0.98 per In Q1 sorry, Q2 2023 versus $1.25 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 provide some additional financial details from the Q2.

Speaker 2

Thank you, Jeff, and good morning, everyone. Revenue and adjusted net revenue for our Americas business decreased 40% in constant currency. Breakeven adjusted EBITDA decreased versus last year's adjusted EBITDA of 3,400,000 Revenue for our Asia Pacific business increased 1% year over year and adjusted net revenue grew 11% in constant currency. Adjusted EBITDA of $2,500,000 decreased from adjusted EBITDA of $2,600,000 a year ago, but increased 2% in constant currency. Revenue for our EMEA business declined 34% in constant currency, while adjusted net revenue increased 10% in constant currency.

Speaker 2

Adjusted EBITDA of $1,100,000 in the Q2 of 2023 increased from adjusted EBITDA of $800,000 a year ago. Turning to some additional financial details on the Q2. We ended Q2 with $23,000,000 in cash and restricted cash. Day sales outstanding was 51 days at June 2023, down from DSO 53 days in March 2023. In connection with the acquisitions of Coit Group in the Q4 of 2020, Kirani in the Q4 of 2021 In Hunt and Badge, in the Q3 of 2022, our balance sheet as of June 30, 2023, reflects $4,900,000 of goodwill $4,000,000 of net amortizable intangible assets.

Speaker 2

The company also paid off its $1,300,000 acquisition related note The company's working capital, excluding cash, increased significantly to $12,500,000 in the Q2 of $6,000,000 in cash flow from operations during the Q2. I'll now turn

Speaker 1

the call

Speaker 2

back over to Jeff to give some more perspective on our RPO business And to review current trends.

Speaker 1

Thank you, Matt. In the Q2 of 2023, lower Hiring activity, particularly in the technology sector, led to declines in revenue, adjusted net revenue and adjusted EBITDA versus the prior year quarter. Activity and other sectors remained in line with our expectations and we continued to win new business in the Q2 of 2023. Although the timing of a recovery in the technology sector is difficult to predict, 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. In the Q2 of 2023, the company repurchased $600,000 worth of stock, which completed the $10,000,000 common stock repurchase program.

Speaker 1

The company began buying under this program back in 2015 and opportunistically supplemented it with a tender offer in 2019 as well as privately negotiated transactions with certain significant shareholders in 2020. Altogether since 2015, the company Repurchased 1,000,000 shares at an average price of approximately $16 per share. The company continues to view share This is an attractive use of capital going forward as evidenced by our recent $5,000,000 share repurchase authorization. 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 experienced in recent years. Operator, can you now please open the line for questions?

Operator

We will now begin the question and answer session. Our first question comes from Marc Riddick with Sidoti.

Speaker 3

Hey, good morning.

Speaker 1

Good morning.

Operator

So I

Speaker 3

was wondering if you could talk a little bit about maybe and certainly it's pretty consistent with a lot of peers of what Folks are seeing out there. I was wondering if you could talk a little bit about maybe what you're seeing as far as clients' activities, as far as the delays, If you're getting the sense of whether it's within particular types of projects Or is it is there anything that's sort of a little different than maybe it's been maybe 3, 6 months ago? Or is it pretty similar To the actions that we saw earlier in the year?

Speaker 1

Yes, I would say there's

Speaker 2

no

Speaker 1

Real significant changes, either positive or negative versus a few months ago. Yes. The biggest observation we have is, how the difference between sectors. So in the technology sector, our team would describe hiring conditions as a nuclear winter. It was about 20% of our total business last year and now it's Less than 5%, which just gives you a sense of the magnitude of the decline in hiring in the tech sector.

Speaker 3

Right.

Speaker 1

All the other sectors, I'd say the strongest sector is life sciences, But it really goes to sector by sector or even company by company. So like for example, our biggest New client win this year is a European company that specializes in clean water and Different hygiene and sanitation type of projects and they recently just made a really large acquisition in the U. S. And so what we thought was going to be a decent sized win turned into a really, really big win after they made that significant Acquisition, we're just getting ramped up with them and then another decent size win we had this year is in the gaming sector. So it's hard to draw big sweeping themes except for the nuclear winter and the tech sector hiring.

Speaker 1

We've been able to find pockets where companies are growing and hiring and really value our Services and need help navigating the environment. And so I would say the most encouraging thing is that we continue to win New business this year.

Speaker 3

Okay. And I was wondering if you could talk a little bit about maybe what your thoughts are as far as Maybe the acquisition pipeline that you're seeing and then maybe in a bigger picture sense, the thoughts around Hopefully, as we get to recover from this activity at some point, how we might see industry Consolidation shakeout going forward, but maybe just sort of maybe just big picture thoughts around what we might See with those kind of opportunities?

Speaker 1

Yes, that's really, really good question, Mark. So for whatever reason, last year, we probably saw more targets Kind of on the market, we were having more conversations than before. So I would say The high point for discussions was late twenty twenty one and first half of twenty twenty There are decent number of discussions, decent number of targets that we were looking at. And there's just a big gap between Our perspective on value and their perspective on value and some of them Some of them did get sold, most of them didn't. And then a few of them Now have a lot more realistic expectations, a whole other category just Hunkering down and waiting for a better day, but the ones where they have lower expectations, maybe they had a failed Sales process or it just took a few quarters for the slowdown in activity to sink in.

Speaker 1

Those are things that we remain in kind of active dialogue with. So we're always having discussions with somebody somewhere. So I would just describe it as not as heated as it was in 2021, 2022, but there is a few that could be interesting largely because They have more realistic expectations today than I did say 18 months ago.

Speaker 3

No, that's really helpful. I appreciate the commentary there. I was wondering if you could talk a little bit about maybe what you're seeing as far as candidate availability. And It's from the talent side of things, certainly, it seems as though that continues to be a But I was wondering if you could are you getting a sense that there are maybe that varies by specialties and the like, but you could talk a little bit about what you're seeing there as far as are we seeing any changes there as far as how many candidates So out there or any pockets of potential green shoots from that standpoint?

Speaker 1

Yes, that's A really good question. I would describe it

Speaker 2

at a

Speaker 1

high level as the labor market is still tight, But not as tight as it was, but then you get some significant It is depending on sector and depending on geography. So despite what I said about the Technology sector where there are a lot more, I think Canada is looking and there are jobs available. Most companies that we talk to, Whether they're in healthcare, financial services, consumer, they do have a lot of roles, A lot of IT roles, they might not be in California, they might be in the middle of the country or somewhere internationally. And those have still been hard to fill. It's a very ubiquitous skill set.

Speaker 1

And then within the technology sector itself, the green shoots That we see, and I even shutter to mention this phrase, but AI and Cybersecurity, there are companies getting funded and typically once a company gets They have aggressive growth goals that they need to meet, which means they need to hire more tech specialists, software engineers, Programmers, people like that. And so that is the one area, maybe also IT services. Those The areas where we see some hiring activity.

Speaker 3

I appreciate the color and I'll resist the urge to On AI questions, because that can certainly lead to a whole different area, but I do appreciate. Thank you.

Operator

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

Speaker 1

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

Operator

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, hudsanrpo.com.

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Key Takeaways

  • In Q2 2023, Hudson Global reported revenue down 18% year-over-year in constant currency to $45 million, adjusted net revenue down 15% to $23 million, and adjusted EBITDA fell 52% to $2.6 million, with net income of $0.6 million ($0.18 per diluted share).
  • The Americas business saw a 40% drop in revenue, while Asia Pacific revenue rose 1% (adjusted net revenue +11%) and EMEA posted a 34% revenue decline but 10% growth in adjusted net revenue, with both regions delivering EBITDA growth in constant currency.
  • Technology sector hiring has entered a “nuclear winter,” shrinking from 20% to under 5% of Hudson’s business, though the company continues to win new mandates in life sciences, clean-water, gaming and other active niches.
  • Hudson closed Q2 with $23 million in cash, improved DSO to 51 days, paid off a $1.3 million acquisition note, generated $6 million of operating cash flow and grew working capital (ex-cash) to $12.5 million.
  • The company completed its $10 million share repurchase program—acquiring 1 million shares at an average of ~$16—and announced a new $5 million buyback authorization.
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Earnings Conference Call
Hudson Global Q2 2023
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