Hudson Global, Inc.
Q4 2008 Earnings Call Transcript

Published: 17 Feb 2009

[Operator:]

Good morning. My name is Janis and I will be your conference operator today. At this time, I would like to welcome everyone to the Hudson Highland Group Q4 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator instructions) Thank you. Mr. Kirby, you may begin your conference.

[David Kirby:]

Thank you very much, Janis, and good morning everyone. Welcome to the Hudson Highland Group conference call for the fourth quarter of 2008. Our call this morning will be led by Chairman and Chief Executive Officer, Jon Chait, and Executive Vice President and Chief Financial Officer, Mary Jane Raymond. At this time, I will read the Safe Harbor Statement. Please be advised that except for historical information, the statements made during the presentation constitute forward-looking statements under applicable securities law. Such forward-looking statements involve certain risks and uncertainties, including statements regarding the company's strategic direction, prospects, and future results. Certain factors, including factors outside of our control, may cause actual results to differ materially from those contained in the forward-looking statements, including economic and other conditions in the markets in which we operate, risks associated with acquisitions, competition, seasonality, and the other risks discussed in our filings made with the SEC. These forward-looking statements speak only as of today. The company assumes no obligation and expressly disclaims any obligation to review or confirm analysts' expectations or estimates, or to update any forward-looking statements whether as a result of new information, future events, or otherwise. With that, I will now turn the call over to Jon Chait.

[Jon Chait:]

Thank you very much, David. And thank you, ladies and gentlemen, for joining us today. During the course of my remarks, I'm assuming that all of you have had a chance to read our press release, and letter to shareholders that was issued earlier this morning. As everyone recognizes, the world's developed economies contracted in the fourth quarter as the financial and economic downturn spread outward from the US epicenter, and this affected Hudson in all markets in which we compete. The fourth quarter was also characterized by a high degree of uncertainty created by the instability in the global banking system. The resulting volatility in the world securities markets spread into the real economy. These forces had spawned a wave of layoff and restructurings by businesses in many of the major developed economy. These forces also remain in place in Q1 and pose a major challenge for all of our service offerings, but particularly for permanent recruitment. With approximately 48% of gross margin attributable to permanent recruitment, this is a major headwind for Hudson. While all analysts are tempted to look to past recessions for guidance as to the future, there is no precedent in the past recessions for the bank capital problems, at least since the 1930s. With the US having invested $350 billion in the banking system with at least another $350 billion to come, a stimulus package of $700 billion by President Bush, and now another stimulus package of nearly $800 billion from President Obama, and similar action from almost every developed country, we are living through a period without precedent. The current state of the world's economies cannot be compared to the Great Depression, but it is unique and devastating, and it is spreading across most of the world. Perhaps, we should call this the great recession. Looking at the economies is important to Hudson; economic conditions sharply contracted in the fourth quarter and are deteriorating further in the first quarter and forecasted to do so through at least 2009. The speed of the economic downturn has post a particular problem for Hudson, as well as many other companies as it is difficult for us to quickly adjust our expense base. The US, Europe, Japan, and the smaller developed Asian nations all contracted in the fourth quarter, in terms of GDP a further deterioration is forecasted in '09. Employment generally lags the economy and accordingly unemployment is forecasted to increase markedly in almost all of the major Hudson geographic markets in 2009 and into 2010. In fact, the European Commission forecasts unemployment to peak in 2010. While not directly correlated to Hudson's business, the unemployment rate is a proxy for aggregate permanent hiring demand, as an inverse correlation. We believe our focused specialization will mitigate the impact of this lag effect, but it nevertheless poses a headwind for us. Temporary contracting is also cyclical, although less so than permanent recruitment. Classically, employers respond to a contracting economy by cutting nonessential projects and by negotiating contracts. In this cycle, all professional segments are likely to face increasing stress in 2009. Obviously in this cycle, any contracting work involving financial institutions, automakers, and mortgage companies has come under pressure. I want to call your attention to some of the key financial data that Mary Jane will be discussing in more detail. Consolidated gross margin declined 23% from the prior year and the fourth quarter in constant currency. However, the decline accelerated through the quarter. Perm was impacted more than contract by the economic downturn. This is a classical recession phenomenon. In the quarter, permanent revenue was down 33% year on your in constant currency. Contracting revenue declined 9.6% year on year in constant currency. North America accounted for most of the decline in gross margin in contracts. In fact, it accounted for 83% of the total company decline in contracting gross margin with a significant decline in North American, legal through a combination of the settlement of a lodged [ph] case and the lack of new projects. Although contractor demand was weak in all practices, we don't expect North American, legal to remain weak all year. Perm GM declined significantly in all markets ranging to a decline of 21% in Continental Europe to 45% in North America. As discussed below, there were pockets of strength in permanent recruiting in the fourth quarter as is typical in a recession. On a consolidated basis, expenses were managed impressively by almost all areas of the company. In constant currency, gross margin declined $29 million in Q4 compared to prior year with adjusted EBITDA declined $15 million or approximately 50%. North America did a particularly good job of reducing expenses to offset the decline in gross margin. As we look to the first quarter and beyond, I want to give you a few comments. Mary Jane will be discussing our guidance in a moment in greater detail. January revenues and gross margins are running behind prior year. It's always difficult to compare January to December, but the rate of decline remains substantially unchanged in January compared to December. Our management team in all regions is coping well with this unprecedented challenge posed by the economic forces sweeping the globe. We have implemented a number of restructuring actions which will bring expenses into better alignment with our smaller revenue base. The benefit of many of these actions will come later in 2009. We are focused on maintaining liquidity through this turbulent time. Our cash position at year-end was substantially unchanged compared to Q3 despite an EBITDA loss. We are very focused on internal cash management. While it is difficult to perceive positives in a market that is sharply decelerating, our focus on specialization is continuing to pay dividend. Of course overall demand has reduced but there is (inaudible) still some pockets of demand for many clients for essential positions and projects. We've continued to post wins in sectors such as life sciences, consumer goods, energy, public sector, and even the odd financial institution. With that, I will turn over to Mary Jane to discuss the financial results in more detail.

[Mary Jane Raymond:]

Thanks, Jon. Good morning. We posted on our Web site, hudson.com, some slides that further analyze our quarter and the full year and also provide some important reconciliations, I will refer to them from time to time in the next few minutes. John discussed that the economic conditions present during the quarter and outlined the company's position and strategy, given this challenging environment. While these conditions clearly impacted our fourth quarter results, and in some places dramatically, our local leaders were able to actions through our restructuring initiatives and other cost containment actions to offset these effects. In the fourth quarter, North America showed great resilience offsetting 75% of its $7 million year on your gross margin decline. This included, as Jon said, not only declines in permanent placements but also some in legal contracting as well because a major project ended. Similarly in Europe, they offset about 65% of their gross margin decline achieving $4 million adjusted EBITDA of 4.8%, which is an accomplishment, given the worsening conditions they saw during the fourth quarter. Asia Pacific also made progress on cost reductions and restructuring offsetting about half of their gross margin decline in this quarter as conditions weakened significantly from the third quarter. Without making any economic predictions, we expect conditions to remain difficult through at least the first half of ’09, if not the whole year. As most of you recognize, the perm portion of our gross margin is the most exposed in an economic downturn. All of our leaders are focused on ensuring that they and their organizations respond to conditions in a way that protects the health of our business and the needs of our clients. Our key goal is to emerge from this period, when the upturn comes prepare to take advantage of those better conditions. Turning to a few numbers. The fourth quarter snapshot is on slide three. For the total company the fourth quarter, revenue declined 28% and gross margin dollars declined 33. Overall, the gross margin percentage decreased from 41.7% – it decreased to 41.7% from 44.8%. This is due to perm declining faster than temp – many of the markets that had rapid declines in the fourth quarter had more of a perm concentration. Perm declined at three times the rate of temp during the fourth quarter after declining at two times the rate of temp in the third quarter. Perm made up 48% of our gross margin in the quarter, down from 55% during the third quarter. We detailed for you the gross margin mix on slide seven. Our geographic mix is shown on slide eight. In the fourth quarter, over 80% of our gross margin continued to come from our international operations. The adjusted EBITDA margin for the quarter was minus 1.6%, down from 4.3% in the prior year period. Adjusted EBITDA margins by the regions in the quarter were 4.8% for Europe, 0.4% for Asia-Pacific, and negative 1% in the Americas. Corporate expense at the adjusted EBITDA level were $7.1 million, up slightly from $7 million a year ago as lower compensation and lower travel expenses were offset by higher professional fees. For the full year 2008, our consolidated adjusted EBITDA margin was 1.9%, down from 3.4% a year ago. The regional breakdown of the adjusted EBITDA margin is shown on slide 10, with Asia-Pac at 5.4%, Europe at 5.6%, and the Americas at 1.5%. With respect to constant currency, let me comment on that generally. Despite the fact that we saw sharp reversals in our non-US dollar currency, particularly during the fourth quarter, against second and third quarter, the full year impacts are actually not very dramatic on a percentage basis. For the fourth quarter though, the currency impact was significant in reducing the reported results. The revenue decline was 16% in constant currency versus 28% as reported. The gross margin decline was 23% in constant currency versus 33% as reported. However, at these dollar levels, the change in the adjusted EBITDA between reported and constant currency is less than $1 million. Speaking for a minute about the regional results, they are detailed for you on slides four through six. Hudson Americas was down 23% in revenue and 33% in gross margin in the fourth quarter. All the practice groups and perm were down, particularly IT and legal when compared to the prior year. While the legal business has maintained a steady flow of business in the fourth quarter, they didn't benefit from any new clients or clients who are actually accelerating their projects. We had some large cases settle, as John mentioned, in the fourth quarter and our sense was that there was some reluctance on the part of clients to start new projects just before the holidays. The adjusted EBITDA for North America for the quarter was $0.5 million versus $1.2 million for Q4 2007. For the year though, North America returned a profitability of $4 million adjusted EBITDA, after being just below breakeven last year. This was due to cost cutting and a very well-executed restructuring program that offset $4 million more than the total gross margin decline or against a $12.5 million gross margin decline; they offset $16 million of that through their cost reduction actions. As I said, legal and had a pretty tough end of the year. Having said that, while we are seeing caution among clients, we do expect to see legal rebound in 2009 and at the present moment, see a fairly robust level of pipeline activity. Hudson Europe, in constant currency for the fourth quarter was down 11% in revenue, 15% in gross margins, and 57% in adjusted EBITDA. While the majority of these declines were from the UK, we saw conditions deteriorate in Continental Europe for the first time all year and we do expect that deterioration to continue into 2009. The UK declines were about the same in the fourth quarter as they were in the third, roughly 27% down in the fourth quarter versus 31% in the third. Though this was the first quarter of decline, we saw weakness in the UK in every region and in every practice. Candidate reluctance to move is persistent. We have talked about that in prior quarters, particularly for longer-serving experienced people who are at the core of our offering because they weigh the value of a severance package against a possibly uncertain new role. We have forecasted GDP decline in the UK and the economy itself there is so dependent on financial services. We do expect that this market will remain challenging for some time. Continental Europe declined for the first time all year in the fourth quarter as I mentioned. They had a 2% and 7% constant currency decline in revenue and gross margins respectively, with a 21% decline in perm. Contract actually grew 20% in revenue, but the temp margin was down from 35 a year ago to 31 in this quarter, due both to the mix of business as well as the mix of self-employed persons versus on-payroll employees. Still, the leadership of Continental Europe responded very well in this quarter, offsetting more than half of their gross margin declines. We expect greater deceleration in 2009, consistent with the economic forecast and that means we're facing exposure in our perm recruiting. However, this region's leadership has the most experience in downturn and they are committed to bringing this business this through this rocky time. In the Asia-Pacific region, the declines in Q3 more than doubled in the fourth quarter, as recessionary conditions hit all countries in this market rapidly. Asia-Pacific revenue and gross margin declined 15% and 26% respectively in constant currency after about 7% each in the third quarter. Australia New Zealand’s revenue was down 14%, while gross margin was down 23% in constant currency. Just over half the gross margin decline was offset with cost management actions. Even though the adjusted EBITDA declined significantly in the quarter, adjusted EBITDA margins were 2.6%. ANZ’s cost restructuring is broad with many long-term benefits and it is just beginning to show results now. Asia, consisting of China, Japan, Singapore, and Hong Kong, experienced the most dramatic fourth-quarter changes of any of the regions in our company. After about a 1% gross margin decline in the third quarter, Asia's revenue and gross margin declined 36% and 37% respectively in the fourth quarter in constant currency. In seeing this coming, the management took actions in a prudent way to offset the coming conditions. But given the speed with which they saw these conditions hit them, they were not able to materially offset the gross margin decline. This is a small region, entirely focused on perm. We expect further declines in this region in 2009. Management has taken actions in response to the conditions and they will continue to do so. They are very focused in preserving the very, very strong markets we have historically had in Asia. Having said that, with the concentration of perm, we believe this will be our greatest challenge in 2009. As for the full year, I have a couple of comments, since I know what you want to know is mostly about our trends. Our financial data is on slides 17 through 26 for the full year. For the year, we had an 8% revenue decrease with a gross margin decrease of 8% as well. Our adjusted EBITDA was down 50% on a reported basis and 54% in constant currency. We offset approximately half of our gross margin decline through restructuring and other cost management initiatives. A significant percentage, given that 75% of the decline for the year was actually happened pretty quickly at the end of the year. As I turn to comment on a few other financial details for you, we summarize the balance sheet and cash flow on slides 11 and 12. The cash flow from operations was $12 million. Net cash was $43.9 million, an increase of about 10% over prior year. The increase in our cash balance for the quarter was the result of ongoing efforts to increase cash collections and reduce spending. This occurred in spite of the fact that DSO was up to 53 days, up from 49 days last year. However, this was primarily due to one large client who paid in the beginning of January. Capital expenditures were $10.6 million for 2008, compared to $13 million for 2007. Stock comp in the quarter was $800,000 compared to $1.2 million a year ago. For the full year 2008, stock comp was $4.7 million compared to $5.5 million in 2007. Our full-year tax provision was $8.6 million compared to $16.9 million. This provision is on a pretax loss for 2008 of about $2 million, excluding the impairment charge, against a pretax income for 2007 of about $21 million. The increase in the company's effective tax rate in this quarter is primarily due to the decreased income and some state and local taxes that are still due. We had some increases in valuation reserves based on our judgment that in some countries, we may not be able to use tax losses in the foreseeable future. Just to make a few comments for you about liquidity as a general matter, we announced on December 30 that we have revised our credit facility agreement. We no longer have an EBITDA covenant. Instead, we have a $25 million availability covenant and our borrowings are based as they always have been on the level of Accounts Receivable in our business. We have some new restrictions in the facility, including for example, the inability to buy back stock after February 28 of this year. The net cash of $43.9 million at the end of 2008 was also with excess availability under the facility of $19 million. Today, our net cash is a few million below year end, even though we had an EBITDA loss in January, which is typical for January for us. January's revenue level is also the smallest in the entire year. So that has had some effect on the availability, but the availability tends to come back as the quarter progresses. In our restructuring program, we incurred $6.3 million of expenses in Q4 for the program, as we executed initiatives in each region. For the full year 2008, plan expenses were $11.9 million and we now expect that we will have an additional $5 million in charges in the first quarter to tackle rapidly the deteriorating conditions that they saw during the fourth quarter continuing into the first quarter. Our Board has recently agreed to this so that we could tackle the conditions and I think in response to the fact that for our actions taken in 2008, the total savings that we expect to achieve on the restructuring program as well as other actions that we have taken for just general cost containment, we believe the total annualized cost savings will be about $40 million on a constant currency basis. You have already read with respect to guidance that we are not giving guidance for the first quarter of 2009. These times are pretty turbulent, as everybody is telling you and we, like others, have little visibility. We expect operating conditions to remain weak through the first quarter. So with the loss in Q4, we expect a loss in Q1. As for the size of that loss, we expect roughly a similar pattern of decline from Q4 2008 to Q1 2009 as we have seen in prior years in dollar terms. For context, Q1 2008 revenue was $295.5 million and adjusted EBITDA was $6.3 million. Currency exchange rates will drive a significant change in Q1 2009 compared to Q1 2008. Last year's first quarter, at today's currency exchange rates would have resulted in revenue at $242.3 million instead of $295.5 million and an adjusted EBITDA of $3.7 million, instead of $6.3 million. Looking forward to Q2, we believe as a company that we have a fighting chance to have breakeven EBITDA in that quarter. We are committed to fighting for the profitability of our company, pursuant to the strides we have made since the inception of the company, even in this challenging environment. As I noted a moment ago, we expect to have $5 million of restructuring charges in the quarter. We of course exclude this and any other restructuring charges or other impairment costs from our adjusted EBITDA. In the past, I have tried to give you a flavor of guidance as you might see it in the regions. We don't give guidance by region, but just some general terms of trends. What we usually talk about is, do we expect the pattern in each region to follow the pattern of the prior year? That is very difficult to tell you right now. Just to recap a few points we have made about the regions. In North America, legal was pretty lumpy at year-end, but right now, their pipeline is fairly active. We still expect to see client caution on large expenditures, but generally we expect some of the work in the pipeline to be awarded. In the UK, with a 2.8 GDP decline forecasted, we don't expect to see activity pickup in this market in the near term, notwithstanding we are going after the business that is out there as John mentioned. In Continental Europe, we are only just seeing weaker conditions materialize. So generally, we expect to see the downward pressures increase. For Asia-Pacific, we are also just seeing the start of negative pressures. They are working very, very hard on their cost structure as I have mentioned, but with the large percentage of perm that they have, this will be a challenging region for us to manage. Having said that, despite the overall conditions, we stay very focused on the active markets, on our clients who are hiring, on staying close to our clients, and continuing to manage our costs well as we get through this difficult period. With that, let me turn the line back to John.

[John Chait:]

Thank you very much, Mary Jane, and operator, I think we are ready for questions and answers.

[Operator:]

(Operator instructions) Our first question comes from the line of Zoe Alkier [ph].

[Zoe Alkier:]

Hi. My first question is with regard to your legal practice in the US. Somewhat weaker than we expected. I understand that this practice can be lumpy and you made a few comments in your prepared remarks, but any additional color about this practice’s performance during the quarter, your outlook for 2009 and your pipeline would be helpful.

[John Chait:]

Sure. Let me start on that. In the quarter, as I mentioned in my prepared remarks, we had a large client settle a case and of course that had a negative impact on their need for our services. That is typical of the business, that is part and parcel of the business and that is what we always say makes it for a lumpy business, because we have some very, very large projects that can involve, for example 100, 200, 300 legal contractors at a time, and when those cases settle for whatever reason or it comes to an end sometimes, simply from our part of the work that is involved in the case. It is difficult in that same quarter to have a similarly large project. So that is why we only say it is a lumpy business once settled and you don't always get the nice big one to come along. First of all, that was a major issue in the fourth quarter, we had one settle and we didn't have a big one come along. The second thing was, it was a quiet quarter in terms of pipeline. Again, people sometimes forget to think what were the things going on in the external world in the fourth quarter, you know, dramatic fall in the stock market, presidential election, lot of uncertainty about the future, and even clients in the legal area, we felt more cautious about spending, we built the caution. And that had an impact on the quarter. The pipeline activity during the month of December was very low. During the month of January, we have seen an increase in pipeline activity and a modest number of new starts of contractors. As we look out to the end of the first quarter, which we're almost halfway through the quarter, we think we will start up some new projects and put on additional contractors. That is unlikely to have a material impact on the quarter, because again we are already halfway through the quarter and even starting up in a week would not have a big impact, because we would have four or five weeks of billing. So you know, as we look out to the year as a whole, we remain relatively optimistic. We think – historically, we have said we don't see a particularly recessionary aspect to our legal business. I would say we have learned like everybody else in the industry, there is some sort of recessions-driven impact on our business, but nevertheless, we think the legal business will grow in North America in 2009 for the year as a whole.

[Zoe Alkier:]

Okay, moving to the restructuring charges in the first quarter here. What types of things are you doing; closing offices, exiting practice areas, any color you can provide there would be helpful.

[Mary Jane Raymond:]

You are breaking up a little bit but if your major question is what types of things are we doing, they are primarily focused on three main things. One is an activity that we have undertaken through 2008 and that is continually looking at the support functions required for our business at its current size. On the one hand, in the beginning of 2008, we made some very, very good strides with just streamlining the functions pursuant to the company being more material than it was say five years ago. However, as the business shrinks a little bit, we have the opportunity to right-size the support functions to match that. That is the first thing. The second thing is that many of our markets have management structures that are here to the business also being larger. So there is the leader of that state in Australia or some other place of practice leader and that person might have several other managers before you actually get to the revenue-generating consultant. There is less of a need from management structures like that when your business is smaller. So we're also looking at that and working cooperatively with the leadership of the business on what is the management that we need at the present time. The other area is, as always, we continue to look at space consolidation. That is also pretty lumpy, not easy to move or consolidate space but having said that, we have done a good job as a company when leases expire for example, deciding whether we need to renew them or looking at how we might reduce the general cost of that space. That is the third major area that we're looking at. So those are, probably in a nutshell, the three sort of types of actions that we will have. Was there another part to your question?

[Zoe Alkier:]

No, that was it. And then lastly, can you remind me what the earn-out payment will be from (inaudible) and when that will occur

[Mary Jane Raymond:]

Sure. The maximum earn-out payment that we could receive is about $11.5 million. That is dependent on how the consultants do during the last financial year 2008. We will have that paid after their 10-K files, which is 30 days after that, around about 15 April. At this point, we don't need at all to speculate on what (inaudible) results will be while the maximum we can receive is $11.5 million; I have no opinion yet on what it will actually be.

[Zoe Alkier:]

Okay, thank you.

[Mary Jane Raymond:]

Sure.

[Operator:]

Your next question comes from the line of Jeff Silber.

[Jeff Silber:]

Hi, this is Jeff Silber with BMO. Just to help us model the – I know you're not giving specific guidance, but in terms of looking and drilling down into your Europe region and your Asia-Pacific region, can you segment that, Europe specifically, UK versus Continental Europe; and Asia Pacific, Asia versus Australia New Zealand, what is kind of the mix of the business there?

[Mary Jane Raymond:]

You mean in terms of temp and perm for example?

[Jeff Silber:]

Temp and perm would be one, and then even just geographically between those two subregions within each of those regions. I don't need specific country data.

[Mary Jane Raymond:]

I’m with you. Well, with respect to – let's just take fourth quarter. Sorry, David kindly points us to page 14 of the slide, if you look at that, you will see Continental Europe, on a gross margin basis, is roughly about 51% of – Continental Europe is about 51% of the gross margin of Europe and the UK is about 39%. In the Asia-Pacific region, Asia proper, the four countries of Asia, is about 26% of the gross margin and Australia New Zealand is 74%.

[Jeff Silber:]

I'm sorry I missed that data. Thanks for pointing that out. How about in terms of temp versus perm in the two regions?

[Mary Jane Raymond:]

With respect to temp versus perm, generally speaking, if we start with Europe; in the UK, it is about 60% temp at the gross margin and about 30% perm with about 10% in talent management. In Continental Europe, it is about 50% temp and 50% perm. With respect to Australia New Zealand, it is about 50% temp and 30% perm; and in Asia proper, the four countries of Asia, it is all perm.

[Jeff Silber:]

And if I can get the same mix for the Americas as well, temp versus perm?

[Mary Jane Raymond:]

With respect to the Americas market, it is in the range of about 80-20.

[Jeff Silber:]

80 being temp?

[Mary Jane Raymond:]

80 being temp, sorry. Right, exactly.

[Jeff Silber:]

No problem. Okay, great, that is very helpful. Moving back to the restructuring charges, you gave us some color on what you expect the annualized savings to be. When do you think that will kick in and again by region, where should we see the biggest benefit?

[Mary Jane Raymond:]

Well, first of all, I think if we think about the year as a whole, we have seen about $21 million of that reported already and about $28 million in constant currency. If I were to tell you kind of the pattern we have experienced through this year, I would expect to see some pickup along the order of sort of fourth-quarter in Q1 for North America. North America started their restructuring program the earliest of all. They started it in March and had some benefit last Q1, but the benefits really picked up in the second through fourth quarters. So they will have some non-achieved benefits in Q1. With respect to the UK, the UK has also had a very robust program since the second quarter of 2008. So we expect to see some pickup from them for first quarter. With respect to Continental Europe and Asia and to some extent Australia New Zealand, most of their benefits have been achieved during – somewhat little bit in the third quarter but most during the fourth quarter. So I think most of the difference on a constant currency basis, say 20 to 40 we should see achieved outside the United States with some benefits in the UK and the US being in the first quarter.

[Jeff Silber:]

Okay, great. And in terms of corporate cost on a normalized basis going forward, what should we be looking for there?

[Mary Jane Raymond:]

Sure. We mentioned early in the year that for the whole of the year, we had about expenses and professional fees associated with some advising we had on our overall restructuring program and we also had one legal settlement that each of those were about $1.5 million. So my sense is that our goal is to really get corporate down between $5 million and $6 million a quarter.

[Jeff Silber:]

All right, great. Just a couple of more numbers-related questions, I will let somebody else jump in. In terms of the charge you expect to take in the first quarter, is there any tax impact of that or is that book perspective or is that not tax-deductible for book purposes?

[Mary Jane Raymond:]

Well, generally, I mean, it has to do largely with severance costs, which should be largely tax-deductible but I probably cannot give you a real precise answer on that. Some of those costs will be in North America, where it doesn't make a whole lot of difference.

[Jeff Silber:]

Let me ask the question another way. The charge you took in the fourth quarter, what was the tax impact of that?

[Mary Jane Raymond:]

I'm not sure I can answer that off the top of my head. Let me see if we can get that for you by the end of the call.

[Jeff Silber:]

Okay, no problem. And one more and then I will jump off. What was the net operating loss balance at the end of the year?

[Mary Jane Raymond:]

It was about $200 million.

[Jeff Silber:]

And is most of that in the US?

[Mary Jane Raymond:]

Yes.

[Jeff Silber:]

Okay, great. I will let somebody else jump on. Thanks.

[Operator:]

(Operator instructions) Your next question comes from the line of Mark Marcon.

[Mark Marcon:]

Good morning. I was wondering if you could go by region and just mention what the constant currency revenue trends were in December and January. You mentioned that things were sliding as Q4 progressed, but I didn't get the actual numbers in terms of the CC rates.

[Mary Jane Raymond:]

So you are asking, Mark, what the constant currency was by region in the month of December?

[Mark Marcon:]

Yes, December and January, just to get a better feel for how things may end up looking for all of Q1.

[Mary Jane Raymond:]

Well, if you just go across on the gross margin, for the total company, in October it was down 12%, in November it was down 19%, and in December it was down 32%.

[Mark Marcon:]

And then did that minus 32 hold steady in January?

[Mary Jane Raymond:]

Generally, it did.

[Mark Marcon:]

And is that on a CC basis?

[Mary Jane Raymond:]

Yes.

[Mark Marcon:]

And do you happen to have that information broken out by region?

[Mary Jane Raymond:]

So, let me – why don’t you move on to your next question and let me just see.

[Mark Marcon:]

Okay. And then in terms of just going back to the savings from the restructuring, how much of the benefit from the Q4 restructuring did you end up seeing during Q4?

[Mary Jane Raymond:]

Well, and given that – let’s say in terms of numbers – let me think about that a little bit. I think probably a fair bit, if you think about it because we had a $6.3 million charge in the quarter pursuant to the regions taking actions pretty quickly. So if you think about it, the Asia-Pacific region for example, they offset about $10 million of their gross margin decline on a reported basis in US dollars. Some of that would be normally cost management action, but probably four or five of that’s probably pursuant to their charge. With respect to the European region, that's a little tough to tell. Again, they had some restructuring charges in the fourth quarter. They offset about 3.5 of their gross margin decline, again some of that's going to be a natural flux on costs anyway, but they may have about $1 million of it at that point. So my sense is that of that costs that we took, they were actually able to see some Q4 benefits in the quarter they took the charge.

[Mark Marcon:]

Yes, Mary Jane, that's precisely the nature of the question, I was trying to get at, if we look by region and using Continental Europe as an example, there actually was a nice expense reduction. And what I was trying to get a sense for was how much of that expense reduction was just due to the natural flux in the business as opposed to how much was due to the expense reductions? And the underlying rational for the question. I was just trying to understand how much flex you have in terms of the expense structure without taking restructuring charges, so we could understand what the underlying profitability could look like going forward?

[Mary Jane Raymond:]

I think that's a little bit tough to tell, but I would say given that Continental Europe had been growing to some extent through the third quarter and then the downturn hit them pretty quickly. So naturally they wouldn't have been able to action large restructuring charges too swiftly if you think about it. So if they had about a $3.5 million offset to their gross margin I would imagine, as I said, that about, probably only about $1 million has to do with the restructuring for them, and the rest of it is from the natural cost flex, as well as I think it just other contraction of spending. Like traveling less, for example, neither needs a restructuring charge, nor is necessarily a commission flex on revenue, right, but people will naturally bring it back. So my sense is that probably may be as much as two thirds of it was just a natural expense containment.

[Mark Marcon:]

So do you have the trends by region?

[Mary Jane Raymond:]

So the trends by region, with respect to the revenue decline in constant currency, for the total company in December was 22% decline and in January was about 27%, North America was 33% in December and about 40% in January, Europe was about 14% and 22%, ANZ was 22% and 21%. At the gross margin, for the total company it is about 32% and 32%, as Jon mentioned; North America was about 43% and 50%; Europe was 23% and 28%. Asia-Pac was 37% and 27%.

[Mark Marcon:]

Did you say, 37% and 27%?

[Mary Jane Raymond:]

Yes.

[Mark Marcon:]

Are things getting better over there?

[Mary Jane Raymond:]

I wouldn't say that.

[Mark Marcon:]

What would lead to just an easier comp or –

[Mary Jane Raymond:]

Well I think, Mark, when you're looking at trends from one month to the next, in a relatively small month, right –

[Mark Marcon:]

Yes, it’s pretty lumpy.

[Mary Jane Raymond:]

Well, in Australia, December and January were relatively small months. Their strongest fourth-quarter month is October.

[Mark Marcon:]

Right.

[Mary Jane Raymond:]

I don't think you can really draw a pattern on those two months in particular.

[Jon Chait:]

Yes. So, Mark, the other thing I would mention is, first of all, we're giving you some trend information just directionally. We haven't scrubbed our January numbers. So we are trying to give you a directional sense, not necessarily down to the last decimal. Things are certainly not getting better. So don't draw that conclusion. And the second thing is, we don't have enough sense right at the moment what the impact of Chinese new year was from year to year, and other things that might affect the Asian region. We have to take a look at that too.

[Mark Marcon:]

And then are there any outflows that you have from a cash perspective that we should know about?

[Mary Jane Raymond:]

I don't know that they are terribly significant.

[Mark Marcon:]

I just meant relative to the significance of the hydric [ph] inflow.

[Mary Jane Raymond:]

Let's just take our earn-out as an example, we only have two acquisitions that are still on earn-out payments. The one in China, which is – would be under $3 million, in fact maybe under $2 million, I don't have that quite precisely at my fingertips. And the other one in France is very, very small would be in the range of a couple hundred thousand dollars. So we no longer have earn-out payments of that size, just as the one comparator we've looked at in the past.

[Mark Marcon:]

Great, thank you.

[Operator:]

Your next question comes from the line of Bobby Melnick.

[Bobby Melnick:]

Hi, John.

[Jon Chait:]

Hi, Bobby.

[Bobby Melnick:]

I wanted to ask you guys a question and I hope you can help me understand. Yours is not a capital intensive business, your PP&E at the end of the year was around about the $25 million versus $29 million the prior year. And just to scope my question in terms of some perspective, obviously you've reported your EBITDA for the year was $20 million versus $40 million. And as we said here at this very moment your enterprise value is about $18 million, which frankly adjust for the prospect of the hydric payment, it could be substantially less and could be approaching zero roughly or a few million dollars, but my question is the following. In so far as you are not a capital intensive business, help me to understand please, when you spend $10 million or $11 million on CapEx, even down from $13 million the year before, what is that?

[Jon Chait:]

Let me start off and Mary Jane can give more detail. Basically our capital expenditures fall into two categories. One is refurbishments, lease hold improvements and dilapidations. And even while out network is not a gigantic network compared to Manpower or Adecco, we still have a network of offices and every year we have the need to refurbish a certain number of offices and to pay as we move around. Mary Jane mentioned that we move around to reduce our expenses; we don't move around to increase our expenses. We incurred dilapidations charges, so there's a certain amount of that. And I would say just from my perspective, you know, let's just say we keep a very close eye on expenses associated with lease hold improvements. We don't have elaborate offices around the world. We're not investment banking standard or legal standard in terms of office improvements. We don't have a million-dollar offices. My office didn’t cost a million dollars. The second area that we have expenses and basically related to technology, and again we have a network of offices, there is a seemingly never-ending demand for new technology, upgrading technology, just maintaining the technology that we have. And that's an ongoing expense as well. Those are – (inaudible) those are the principal categories.

[Mary Jane Raymond:]

I think that's right, I mean, just remember that our company was 25 years [ph] ago was 67 or now 53 unconnected little companies. So over the last few years, we've invested in the IT system to connect the regions. And that had been the primary portion of our IT spending. In 2008, we finished up, or are about to be finishing the investments in Europe’s system. Jon mentioned that investments for lease hold improvements. Also when we spun we were in some properties that actually were pretty expensive and we have systematically moved out of them. But when you do you then put the lease hold improvements – you're required to put lease hold improvements in the new place just so people have a place to sit. Having said that, it's my expectation that the capital in 2009 will not exceed $6 million. Does that answer your question?

[Bobby Melnick:]

Very helpful. Thank you.

[Operator:]

At this time, there are no further questions.

[Mary Jane Raymond:]

Let me just answer on Jeff’s question about the tax benefits for the Q4 charge. The Q4 charge is about $6.5 million, about $1 million of that was in the US. So we wouldn’t receive a tax benefit from that. So of the remaining $5.5 million, and roughly average rate of about 30%, the tax benefit is about 1.65.

[Jon Chait:]

Operator, are there any other questions?

[Operator:]

At this time, there are no further questions.

[Jon Chait:]

I will turn over to David Kirby, our Director of Investor Relations for the wrap up.

[David Kirby:]

Thank you, Jon, and thank you every one for joining us this morning on the Hudson Highland Group fourth quarter conference call. Today’s call has been recorded and will be available later today by calling 1-800-642-1687 followed by the passcode 83821257. For callers outside of the US, please dial 1-706-645-9291 followed by the same passcode. The archived call will be available for the next seven days. And today’s webcast will also be available on the Investors section of our Web site, hudson.com for the next week and beyond. Thank you for joining us today and have a great day.

[Operator:]

This concludes today’s conference. You may now disconnect.