Hudson Global Q4 2023 Earnings Call Transcript

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March 14, 2024

Key Takeaways

  • Hudson reported Q4 2023 revenue of $34 million (−22% YoY in constant currency) and adjusted EBITDA of $0.1 million, down from $2.4 million a year ago.
  • Adjusted EBITDA was impacted by a $0.4 million true-up to accounts receivable reserves and the company has already implemented significant cost structure reductions.
  • The balance sheet remains healthy with $23 million in cash and restricted cash, 49 days sales outstanding, and $3.3 million of cash flow from operations in Q4.
  • Management highlighted a strategic shift in RPO under newly hired Global CEO Jake Zekwitz and CHRO Jeff Boettinger, including expanding service offerings and completing a bolt-on Middle East acquisition to fill geographic gaps.
  • Hudson expects client hiring delays from Q4 to recover in Q2 2024, and continues opportunistic share repurchases under its $5 million authorization, having bought back over 44,000 shares to date.
AI Generated. May Contain Errors.
Earnings Conference Call
Hudson Global Q4 2023
00:00 / 00:00

There are 4 speakers on the call.

Operator

Good morning, and welcome to the Hudson Global's 4th Quarter 2023 Financial Results Conference Call. 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 law. 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 to be filed today and in our other filings made by 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, hudsonerpo.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 Everwan.

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 Q4 2024 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 Q4 of 2023, we reported revenue of $34,000,000 down 22% year over year in constant currency.

Speaker 1

Adjusted net revenue was 17,000,000 dollars and decreased 26% year over year in constant currency. SG and A costs were $16,000,000 in the 4th quarter, down 17% versus the same period last year in constant currency. We reported adjusted EBITDA of $100,000 down from $2,400,000 a year ago. In addition, we reported net income of $700,000 or 0 point 23 per diluted share versus net income of $100,000 or $0.02 per diluted share in the same period last year. We reported adjusted net income per diluted share of $0.04 in Q4 2023 versus $0.33 a year ago.

Speaker 1

For further context, I would add that our Q4 2023 adjusted EBITDA included $400,000 of expenses related to a true up to our accounts receivable and related reserves. These kind of expenses tend to be lumpy in nature and our team is working hard to high grade our client portfolio and therefore our AR going forward. So adjusted EBITDA would have been $500,000 excluding these expenses. I'll now turn the call over to Matt Diamond, our CFO, to review our financial results by region as well as add some additional financial details from the Q4.

Speaker 2

Thank you, Jeff, and good morning, everyone. Revenue for Americas business decreased 38% and adjusted net revenue decreased 37% in constant currency. Adjusted EBITDA loss of $700,000 decreased versus last year's adjusted EBITDA of 500,000 dollars Revenue and adjusted net revenue for our Asia Pacific business each decreased 18% year over year in constant currency. Adjusted EBITDA of $900,000 decreased from adjusted EBITDA of $2,100,000 a year ago. Revenue and adjusted net revenue for our Europe business each decreased 17% versus the prior year quarter in constant currency.

Speaker 2

Adjusted EBITDA of $600,000 in the Q4 of 2023 increased slightly from adjusted EBITDA of $500,000 a year ago. Turning to some additional financial details from the Q4. We ended the Q4 with $23,000,000 in cash and restricted cash. Days sales outstanding was 49 days at December 2023, down slightly from DSO of 50 days in December 2022. In connection with the acquisitions of Coit Group in 2020, Karani in 2021, Hunt and Badge in 2022 and Hudson Singapore in the Q4 of 2023, our balance sheet as of December 31, 2023, reflects $5,700,000 of goodwill and $3,600,000 of net amortizable intangible assets.

Speaker 2

The company's working capital, excluding cash, increased significantly to $12,000,000 at year end 2023 from $7,300,000 at the end of 2022. The company generated $3,300,000 in cash flow from operations during the Q4. 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.

Speaker 1

Our Q4 financial results continued to reflect the year over year impact of the slowdown in the U. S. Tech sector hiring, as well as 4th quarter hiring delays at certain clients, which we expect to recover beginning in the Q2 of 2024. In addition, we've made significant reductions to our cost structure in the second half of twenty twenty three and the Q1 of 2024, while retaining the ability to deliver excellent service to our clients when activity rebounds. The 4th quarter represented a strategic shift for Hudson RPO.

Speaker 1

In November, we hired Jake Zekwitz as Hudson RPO's Global CEO and he has begun implementing numerous positive changes to the business, including expanding our geographic presence as well as our service offering to existing RPO clients. These growth initiatives coupled with 2023's significant new business wins give us high confidence in our business improving in 2024. This confidence is demonstrated by our extensive history of opportunistic share repurchases, including a recent January repurchase via a privately negotiated transaction. In addition, as a reminder, the company approved a new $5,000,000 common stock share repurchase program in August 2023. Under this program, the company acquired 11,000 shares in the Q4 of 2024 and thus far sorry, in the Q4 of 2023 and thus far in 2024, we've acquired a little over 44,000 shares.

Speaker 1

The company continues to view share repurchases as an attractive use of capital going forward and we expect to buy more when we can. Finally, we were excited to announce our Middle East acquisition on March 12. This small but important bolt on acquisition gives us an immediate presence and book of business in the Middle East. This acquisition will give our clients across the globe confidence that we can find in place the best talent in the UAE and the Middle East for their strategic business needs. Building off our recent additions in Southeast Asia and the Middle East, we're excited to continue to expand our footprint as we execute on our strategy of global expansion through organic and inorganic growth.

Speaker 1

Importantly, I want to thank all of our highly dedicated employees for their flexibility, hard work, 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

The first question comes from Marc Riddick with Sidoti and Company.

Speaker 2

Good morning.

Speaker 3

So I wanted to go over a few things. Certainly, there's been some announcements since Jake joined in November. So I was wondering if you could talk a little bit about some of the changes that you were talking about in the press release, some of the moves there as well as the acquisition and sort of maybe how the acquisition came to be?

Speaker 1

Sure. So we are global, but there to be frank are some holes in our portfolio and in the past we have lost out on some new business opportunities by only being able to serve potential clients in, say, 80% of their needs. And so we have been looking over time to fill some of those holes in our portfolio. And although we've done a little bit of work for European and American clients in the Middle East, We have never had a strong presence there. And with this acquisition, we acquired a very experienced team and business licenses and all the things we need to do to take on bigger projects in that region.

Speaker 1

And we see it as a high growth region. There's a lot of multinationals there and it is a competitive advantage to be able to serve global clients in that region when only a few of our competitors were able to do so. So it was an opportunity we found out about and it was we had several members of our management team meet with them, do the due diligence and we were able to close it very quickly. I would say it was a a small but important acquisition.

Operator

Okay, great. Thanks for that. And then you also had

Speaker 1

Sure. No, this was an idea of Jake's and the gentleman we hired, Jeff Boettinger is a very experienced CHRO. He's had that role at several multinational companies. And so when we're pitching for new business, he can be part of that pitch and he's been in the client's shoes and has been an RPO client for many years in his previous work experiences. And that's another thing that we think gives us a real edge when pitching for new business is having a former CHRO in the room speaking the same language with the client and he comes with a tremendous amount of contacts in the industry.

Speaker 1

And so all these moves are meant to help accelerate our growth and of course in a profitable way. So we think we're incredibly well positioned to grow faster than our peers going forward. And all these moves vein.

Speaker 3

Okay, great. And then just a couple more from me. One of the things that I thought was kind of interesting is in the commentary of the both your prepared remarks and in the press release, I think you alluded to expecting to see some improvement in client activity beginning in the Q2. I was wondering maybe if you could maybe share some thoughts as to maybe what you're seeing or where the improvement in the visibility or maybe give you some confidence that we'll start to see

Speaker 2

a little more activity around that time?

Speaker 1

Yes, great. Good question and very observant, Mark. 2023 was a year of opposites in a way, in that continues to be very low levels of hiring in the tech sector, very few IPOs, even though a few big tech companies are having a strong stock price performance and there's a lot of buzz around certain things like AI and cybersecurity, very low levels of tech hiring. And so we had a full year of just extremely low levels of tech hiring, similar to the deep recession years 20 years ago financial crisis, it really feels like that in the tech sector. In addition, another thing we saw on the weak side was several clients delay hiring in the Q4.

Speaker 1

We saw that acutely. And what we see in recessions is reductions of hiring plans. So we'll have a client say, just for an example, maybe they're planning to hire 500 people a quarter and they say, you know what, we're going to change that to 200 people a quarter or 100 people a quarter or just put on a hiring freeze. That's the kind of behavior you see in recessions. What we saw instead was we're still going to hire 500 people, but let's push that into Q1, what's the rush?

Speaker 1

And it felt to us like some of our clients were struggling to hit budget and pulling out doing all the things they could do to push expenses into 2024. And we saw a little bit Q1 is always a weak quarter for us because of just seasonal slowdowns in Australia, China, Hong Kong, Chinese New Year. But importantly, those hiring plans haven't gotten canceled or even reduced, they just got pushed into the future. And what I meant by 2023 being a year of opposites was we saw that weakness, but at the same time, it was a very strong year for new business wins. I think we won more new business in 2023 than any year I can remember in terms of total contract value.

Speaker 1

And we'll really start to see the benefit of some of those new client wins in Q2 and by mid year when they're fully ramped up, I think a couple of those new wins will be in our top five client list, which doesn't always happen that you win some new business and within 6 months they're in your top 5 client list. So we're in this odd dynamic now where we had weak 4th quarter results, weak we'll have a weak 1st quarter results, but pretty good visibility into a strong rebound starting in Q2 and we're very excited about what we think we can show in the second half of this year.

Speaker 3

That's very helpful. Thank you.

Speaker 1

Thank you, Mark.

Operator

That concludes today's question and answer session. I would now like to turn the call back over to Jeff Erberwan for closing remarks.

Speaker 1

Well, thank you 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 update call. Have a good day everybody.

Operator

Thank you for joining the Hudson Global 4th quarter conference call. Today's call has been recorded and will be available on the Investors section of our website, hudsonerpo.com.

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