Hudson Global, Inc. (HSON) on Q1 2022 Results - Earnings Call Transcript
Operator: Good afternoon, and welcome to the Hudson Global Conference Call for the First Quarter of 2022. Our call this afternoon 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. And 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. Sir, you may begin.
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 first quarter 2022 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 first quarter of 2022, we reported revenue of $51.9 million, up 58% year-over-year in constant currency. Adjusted net revenue was $25.6 million, an increase of 107% year-over-year in constant currency. And I would note that our organic adjusted revenue growth was 86% in constant currency. SG&A costs were $20.3 million in the first quarter, up 74% versus the same period last year in constant currency. And we reported adjusted EBITDA of $5.2 million versus $800,000 a year ago. In addition, we reported net income of $3 million or $0.97 per diluted share versus a net loss of $200,000 or $0.07 a diluted share in the same period last year. We reported adjusted net income per diluted share of $1.23 in first quarter 2022 versus $0.07 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 first quarter.
Matt Diamond: Thank you, Jeff, and good morning, everyone. Our Americas business grew revenue and adjusted net revenue 220% and 226% in constant currency, respectively, with approximately 75% of this growth attributable to organic growth and the remainder coming from the acquisition of Karani in the fourth quarter of 2021. Adjusted EBITDA of $3.5 million increased versus last year's adjusted EBITDA of $0.2 million. Our Asia Pacific business grew revenue 30% in constant currency and adjusted net revenue of 50%. Adjusted EBITDA of $2.4 million increased from adjusted EBITDA of $1.1 million a year ago. Our EMEA business grew revenue of 40% and adjusted net revenue of 37% in constant currency. Adjusted EBITDA of $0.3 million in Q1 2022 increased slightly compared to adjusted EBITDA of $0.2 million in Q1 of last year. Lastly, we believe it is important to highlight that adjusted net revenue again grew at a faster rate than SG&A across each of our 3 regions in Q1. This operational leverage we are seeing is critical to achieving our goal of growing adjusted EBITDA before corporate costs as a percentage of adjusted net revenue to the 20% level over the long term. Turning to some additional financial details from the first quarter. We ended Q1 with $19.5 million in cash and restricted cash. Days sales outstanding was 47 days at March 2022, up from DSO of 41 days at March 2021. In connection with the acquisition of Coit Group in the fourth quarter of 2020 and Karani in the fourth quarter of 2021, our balance sheet as of March 31, 2022, reflects $4.2 million of goodwill and $5.2 million of net amortizable intangible assets. The company's working capital ex cash increased to $13.3 million in the first quarter of 2022 from $7.8 million at the end of 2021. As a reminder, in April 2019, we finalized our credit facility in Australia to support the expected growth in working capital needs as a result of new wins in that market, but we had nothing drawn on this facility at the end of Q1. The company had a cash outflow from operations of $2.4 million during the first 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.
Jeff Eberwein: Thank you, Matt. As you can see, in Q1 2022, we continue to see strong activity levels as our teams in each region capitalized on the strong demand for our services. Our business exhibited very strong growth in revenue, adjusted net revenue and adjusted EBITDA across all 3 regions in the first quarter of 2022 versus the prior year quarter. Our sales activity levels and pipeline remain robust, and I continue to be encouraged by the increasing level of collaboration across our teams globally and by the integration of Coit and Karani, our 2020 and 2021 acquisitions. Both of these acquisitions have delivered exceptional results thus far. Globally, the demand for our services remains robust, and we expect to continue to deliver strong growth going forward. Importantly, I want to thank all of our highly dedicated employees for their flexibility, hard work and dedication to our clients and business in the challenging conditions we've been working through. Operator, can you please open the line for questions?
Operator: Our first question comes from Walter Schenker of MAZ Partners.
Walter Schenker: Actually, it's two questions. I'll limit myself to two. First, hopefully, everyone is doing well and feeling well. Congratulations on a good quarter, and then I'll flow into my question. In looking at the first quarter, which was clearly extraordinarily good from an earnings standpoint, we haven't seen dollar quarters with what if anything was unusual in the quarter, I know you're not going to make a forecast, so that it is not reflected broadly of the current state of the business? It's sort of a forecast.
Jeff Eberwein : Yes. So good question, Walter. I would say the first quarter was a continuation of the strong trends we saw last year, and those haven't let up. I could point to a few minor things here or there. Usually, the first quarter is our weakest quarter of the year. And usually, it declines from fourth quarter, and that didn't happen this year. Just business activity levels were very strong in virtually every region. We did have a few new clients who started up. And sometimes when new clients start, they start slowly and gradually ramp. Other times, they start very aggressively, and we end up doing an unusual amount of activity. And we had a few examples of that. But in general, the takeaway from Q1 is business activity remains really strong and continues to.
Walter Schenker: Okay. My second question is we've had about 7% share creep year-over-year. Year-over-year, I know the company has bought in stock historically. And again, this is not a forecast, but if I annualize the first quarter, it's $4 a share in earnings. You've got a lot of cash. The stock is 8x that number -- 9x that number. Why wouldn't you be buying in stock just traded down to at least offset the share creep from compensation?
Jeff Eberwein : Yes. No, that's very much on the menu. And I would just encourage everybody to look at our history, we've been opportunistic. We have shrunk the share count in absolute terms. It doesn't happen every quarter or even every year. But we have shrunk the share count historically, so we've done way more than just offset dilution. And we've also bought back shares every way a company can through a tender offer, through block trades, through just regular purchasing in the market. I think we still have something like 1.7 million left on our share repurchase authorization. So we have all the tools in the toolkit, and it's something on the menu.
Operator: Our next question comes from Marc Riddick of Sidoti.
Marc Riddick: So I wanted to go into thoughts around labor trends and opportunities. And given the revenue strength that you saw in the first quarter and what seems to be, and you can sort of maybe add to this a little bit. And given the profitability and the order flow, it seemed to be a fairly high utilization level, particularly for our first quarter. So I was wondering if you could sort of thoughts about how that shakes out as the potential hiring opportunities?
Jeff Eberwein : \ Yes. So good question. There could be 2 ways to answer that. One is when you talk about labor, what we're doing on behalf of clients? And at least for right now, hiring activity levels are really strong. There is, in general, a shortage of talent in many areas of the world in many sectors. And the mentality is I need as much help as I can, hiring as much talent and the best talent that I can. And then that's also true for us if you talk about our labor. And we continue to get more and more efficient, and part of our job is to recruit recruiters to recruit people who are involved in talent acquisition and talent management. And if we can't do a good job of that, we're in the wrong business. So it's a good environment for us. Do we struggle to retain people? Of course, we do the same as everybody else, but we'd much rather have this than the opposite.
Marc Riddick: Got you. And then I wonder if you could talk a little bit about the sort of the demand -- sort of mix that you're seeing? Are you seeing any particular specific areas of strength, particularly maybe particular industry verticals or geographies that may be surprised on the upside, given the revenue strength that you saw?
Jeff Eberwein : Yes. I would say, Australia and the U.S. were both really strong for us. And within verticals, I'd say all of them were pretty strong. The 3 main industries that we work for, if you look at our clients, our health care, financial services and technology and all 3 of those were pretty strong in Q1.
Marc Riddick: Right, right. Excellent. I was wondering if you could talk a little bit about maybe what you're seeing with the acquisition pipeline availability and valuation levels that you're seeing out there and sort of how that maybe looks compared to maybe 6 months ago or so?
Jeff Eberwein : Yes. No, really good question. So we're always looking in all markets. It's helped us, as a business and as a management team, to just learn about different companies, different targets, what their business model is. We always learned something, and it's good, we think, to be kind of constantly in the market looking. So one of the things we like to say is that our bar to look is low and our bar to buy is high. So I would say the acquisition pipeline is interesting. There might be a few more targets than a year ago or 6 months ago, but not incredibly so. And it's really just about finding the right fit at the right time. And as we've said before, really looking for those special situations where it's inside our company, we can do more with it. We can accelerate their growth or reduce their costs or integrate them with what we're doing to really create 1 plus 1 equals 3. So we're not just looking to get bigger for size sake. We're really looking for things that are meaningfully accretive to the business in addition to being accretive on the financial metrics.
Operator: I am seeing no further questions in the queue. That concludes today's question-and-answer session. I will now turn the call over to Jeff Eberwein for closing remarks.
Jeff Eberwein : Thank you all again for joining us today and for your interest in Hudson Global. Feel free to contact us any time using the contact information found in the press release or on our Investor Relations website. We look forward to next quarter's update call. Have a great day.
Operator: Thank you for joining the Hudson Global First Quarter Conference Call. Today's call has been recorded and will be available on the Investors section of our website, hudsonrpo.com. Thank you for participating. You may now disconnect, and have a pleasant day.
