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Good day and welcome to the New Work SE Analyst Call Quarter 2 Results 2019 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Thomas Vollmoeller. Please go ahead.
Hi. This is Thomas speaking. To me -- sitting next to me is Ingo. In today's call, we would like to share the results of the second quarter with you. Overall, we are fully on track, and that's why we continue to grow across all our major financial KPIs. Our most important operational KPIs, member development and B2B E-Recruiting customers, continue to grow strongly. And today, I also would like to talk about our view on the current and future macro labor market situation and provide you with a brief recap of our latest M&A transaction as a few investors had some questions regarding the impact of a more shaky economy and the rationale of this most recent M&A transaction. But let's get started with a look at our past quarter's financials. Our group revenues came in at EUR 65.5 million, an increase of 18% over Q2 last year, 16% if you exclude M&A effects. At 18%, profitability grew a notch stronger compared to organic top line growth despite full consolidation of kununu US and additional investments for the Honeypot expansion, which had not been there in Q2 2018. Net income came in at EUR 9.8 million, up 7%.Financials are important, more important yet are, for us, healthy nonfinancials as they reflect our ability to keep on growing in the future. And the 2 important ones, member growth and customer growth, are very, very healthy. When looking at our membership growth, we are posting extremely strong net additions in Q2, almost 480,000 net new members joined our XING platform in Q2. This is the strongest member growth in the second quarter in the history of the company. It is also a result of our ongoing investments to further improve the value proposition of the core networking functions. Last quarter, for instance, we launched a new start page as the previous news feed was increasingly reaching its limits. The new design now automatically adjust to match the size of the screen ensuring an optimal user experience. Furthermore, we introduced a new notification section where members can get a quick overview of all reactions and mentions, including contact requests and comments on posts. As of the end of June, we served 16.3 million members and have since grown to our current figure of around 16.5 million. InterNations has also developed nicely in terms of new members, adding about 70,000 net new expats to the InterNations community. By the way, the team of InterNations successfully launched InterNations GO! during the last quarter in -- of this year. With GO!, with InterNations GO!, we offer a new service platform for international relocations. The expat can access information about every essential service, including removals, Visa applications, language courses. And they will soon be able to create their own moving service package. We already received about 260,000 monthly visits after having launched -- soft launched just recently.Let's have a quick look at paying member development. We've said it quite a few times already as we believe this part of the business is rather countercyclical and is also growing continuously, yet on a small scale. We added about 6,000 net new paying members during Q2 2019. That's good and we are happy about it. Let's conclude the nonfinancial KPIs update by having a look at our B2B E-Recruiting customer development. As you know, we are focusing on the left side of this chart as our aim is to help companies hire the best talent possible, which we believe can only be achieved by implementing a suite of different digital recruiting solutions through our 12-month subscription packages like XING 360 or stand-alone solutions as our XING TalentManager or employer branding profiles of kununu and XING. And you are already aware, our customer base grew by almost 40% last year. In 2019, we are on the original guided, back in 2016, growth levels of around 30% simply because the starting position in 2019 was so high and given that talent is scarce in Germany, which we all -- which you all know and which I pointed out already, we also faced some challenges finding and hiring the right salespeople. To tackle this recruiting challenge, we recently decided to open a new sales office in Berlin. Our total B2B customer base grew by 10%, given that around 50% of this client base uses passive job ads, we experienced high volatility within this nonfinancial KPI. Last not least, I'd like to make a few more general statements since the market has become a bit shakier and some investors asked us about our exposure to cyclicality, et cetera. Furthermore, I would like to offer a little recap of our most recent Honeypot acquisition. Labor market, it is quite obvious to everyone, as it is to you, that the German economy as a whole is currently cooling down as we see an increase in short-term work, more layoffs and fewer temporary employees. Even though no one really believes that we are getting anywhere close to what we saw back in 2008 or 2009. One thing is clear though, and this is different from other European countries and also from the U.K., which used to belong to Europe, the scarcity of talent, especially of knowledge workers, the area where we mostly depend on, will continue to grow. On one hand, the employment has already decoupled from economic growth in the last years anyway, as you can see from this chart. But more important, the supply of talent in DACH will be decreasing significantly in the next years due to the demographics in Germany. The overall working population is expected to decline by several million people over the next 10 years. We already have a record number of unfilled positions in Germany given the general lack of talent available. And it's only a beginning. We see the tip of an iceberg. We strongly believe that demand for talent will increase further as supply continues to decline. That is the structural megatrend we will continue to benefit from irrespectively of short-term fluctuations on the job market. We are growing our candidate supply by about 2 million every year and continue to provide companies with the right tools and services to tackle their individual recruiting challenges. Which brings me to our most recent M&A transaction.Some investors asked about the synergies between XING and Honeypot offerings, and I'd like to say a few words about that as well, the ongoing growth of the unfilled positions because of the lack of available talent. We have a very strong footprint for general candidate reach in Germany, and HR departments are keen to use our service to source different role types. When it comes to IT professionals, i.e., software developers, our value proposition is somewhat limited. And software development is likely to be the hottest profession over the next decade, but developers are difficult to: a, acquire as a member of an online business network, by the way, as it is also [ following ] them; and b, as a candidate for vacancy because, in most cases, the timing is bad when a company approaches a candidate.Honeypot succeeded in building a strong value proposition in this highly attractive market. They are part of the international software development community and, thus, managed to build a community of highly experienced IT professionals, both in DACH and further afield. By owning Honeypot, we are be able to offer existing and potential XING B2B customers access to a growing German international software developer community. Our 350 XING HR experts, i.e., our XING sales colleagues, know exactly when their respective HR customers are looking for IT professionals and can quickly generate highly relevant and warm leads for Honeypot to accelerate their B2B customer growth. That is the synergies between -- the synergy between XING and Honeypot that's why we bought the company, and I cannot think of any better synergy. In addition, we can significantly increase the talent pool for corporate HR departments and help and source candidates for -- on an international level, which is becoming more commonplace going forward. And as recruiters can only see and approach developers who are willing to change jobs, both the response rates and conversion rates are very high. This means that Honeypot is really complementary to our offerings and puts us in a position to benefit from the overall digitization of the labor market and job [ indiscernible ]This concludes my quarterly update. So now I hand over to Ingo, who will run you through the financials and the outlook.
Thank you, Thomas. Hi, everybody. This is Ingo, and I would like to talk to you about our Q2 numbers in more detail. Generally speaking, we are progressing according to plan. Let's start with a look at the key message points. Number one, we've had very strong member growth in Q2, and that's good because that's what's driving our business in B2C as well as in B2B. Number two, overall revenue growth amounts to 18% year-over-year. Out of that, approximately 2 percentage points contributed by Honeypot, which we've consolidated for the first time in the second quarter of this year. Number three, EBITDA came in at EUR 22 million with a margin of 34%. Number four, operating cash flows came in at EUR 16.8 million (sic) [ EUR 16.4 million ]. And number five, we're confirming our full year guidance with an EBITDA of EUR 84 million, including Honeypot. I'm going to give you more details on the following charts but before, a few words on our name change. You will have noticed that the name change and the ticker changed from XING SE to New Work SE has become effective on August 1. In one of the previous calls, we've told you the why behind this. XING, as a company, has become so much more than just a network. They're new businesses. They're new brands. And just as the network, XING, all of these new businesses support our vision for better working life. If you look at it this way, changing our name for the group from XING SE to New Work SE is a logical consequence. So as of August 1, XING SE is the New Work SE. We have a new ISIN, we have a new WKN. We do have a new basic ticker symbol, which is NWO. And we have new ticker symbols on Bloomberg and on Reuters. Now inside the company, nothing of substance has changed. It's the same businesses. It's the same end user and end customer brands, the same business models. And it's the same strong economics. In short, our equity story remains the same and has not changed.I'll start with an overview of our Q2 P&L. As you know, we have a new structure stating explicitly our capitalized own software work, development work. Service revenues came in at EUR 65.5 million, that's up 18% year-over-year. For the first time, we have Honeypot included, which had contributed 2 percentage points of growth. And with that, we're in our target range. EBITDA amounts to EUR 22 million, that's up year-over-year. In Q2, EBITDA margin amounts to 34%. As you know, Honeypot is diluting on our group margin as we are still in the phase of building the business and are incurring startup losses here. Now with these numbers, we are confirming our full year guidance with an EBITDA of EUR 84 million, including Honeypot. Depreciation amounts to EUR 6.7 million, that is up year-over-year. Please note, again, this includes now the depreciation for the Honeypot purchase price allocation, which added approximately EUR 0.3 million in depreciation. And overall, we are currently having a little over EUR 1 million in purchase price allocation depreciation from our acquisitions. Financial result amounts to minus EUR 0.5 million, that's down year-over-year. You will remember that last year, our financial result had a positive figure because we had a positive onetime nonoperating effect from earnout adjustments. And this year's Q2 includes a negative nonoperating onetime effect from earnout adjustment in the amount of minus EUR 0.2 million. The rest is basically accounting only noncash costs for discounting future earnout liabilities according to IFRS. With that, reported net income amounts to EUR 9.8 million, which is up 7% year-over-year. And with that, reported earnings per share amount to EUR 1.75. Now if you exclude and eliminate the nonoperating effect in financial results from earnout adjustments in this year's Q2 as well as in last year's Q2, net income this year would amount to EUR 10 million; and in last year's Q2, it would amount to EUR 8.4 million, which would result in net income growth of 19% year-over-year.On the next chart, you can see profitability by business unit. Let's start with the B2C segment. In Q2, the B2C segment contributed EUR 7.5 million in segment EBITDA, which is down year-over-year as planned. The reason: our continued investments into our established B2C businesses, new B2C-based businesses and, of course, our member base, which is the basis for all B2B businesses. Therefore, please remember not to look at our segments on a stand-alone basis. Our B2C segment is not only a business in itself, but it is also the business for our B2B business. Any investment in B2C is an investment in B2B as well. And the B2B business, as a consequence, generally speaking, have higher margins because they have marginal byproduct economics on the basis of this B2C asset.The B2B E-Recruiting segment contributed approximately EUR 22.7 million to profitability, that's up year-over-year, and return on sales is up as well. Here, you can see the just mentioned marginal byproduct economics. The B2B Marketing Solutions & Events segment contributed EUR 2 million to profitability, that's up year-over-year, and margin is up as well. And as you know, kununu US now is fully consolidated. And in Q2, the startup losses came in according to plan and amounted to minus EUR 0.5 million. As you know, we expect a very small single-digit million euro loss in that business for the year 2019.On the next slide, you can see revenue development by segment. B2C revenues came in at EUR 25.6 million, that's up 3% year-over-year. The segment is developing according to plan. B2B E-Recruiting revenues came in at EUR 34.2 million, that's up 31% year-over-year. Honeypot contributed 3 percentage points to this segment's revenue growth. In February, we said that we expect organic growth of 30% plus for E-Recruiting. At this point in time, we forecast, however, organic growth for this year of rather around 30%. Honeypot will contribute on top of that. That is less than we wanted, but we're still showing very attractive growth in E-Recruiting. Our modern forms, E-Recruiting Active Recruiting and employer branding continue to grow strongly. Finally, let's look at B2B Marketing Solutions & Events. Revenues amount to EUR 5.8 million, that's up 26% year-over-year. Here, we're fully on track, focusing more on larger customers. So while we're growing revenues, as forecasted, probably we'll have a stable number of customers. On the next slide, you can see an overview of our cost structure. Please remember, we have consequential changes here from our new P&L structure, personnel costs as well as freelancer costs in our other operating expenses cost lines are now shown before capitalization. In Q2, personnel costs before capitalization amount to EUR 31.2 million. That's an equivalent of 48% of revenues. If you deduct capitalization, personnel costs would amount to around 40% of revenues. Costs are up year-over-year, and this development is fully in line with expectations. Year-over-year, we've added 322 full-time equivalent employees. They have 64 for Honeypot and 12 for kununu US. 246 FTE were added organically. Out of those, 151 in B2C, mainly in product and engineering; 21 in B2B E-Recruiting, and they're mainly in sales and marketing but also some in product and tech; 22 in B2B Marketing Solutions & Events across all functions; and 52 in the rest of the organization. If you look at marketing, in Q2, overall marketing costs amount to EUR 7.1 million. That's 11% of revenues and that's up year-over-year. If you compare it to Q1, we are back to normal levels in marketing spend in Q2 as we did not have the branding campaign, which we had in Q1. Last cost line is other operating expenses. As you all know, it includes, as usual, external services, legal, audit, consulting, payment processing, server hosting and other costs. In Q1, other operating expenses before capitalization amount to EUR 12.4 million or 26% of revenues, that's up year-over-year. If you deduct capitalization for freelancers, other operating expense would amount to around 17% of revenues.Our next slide, you can see cash flows. Operating cash flow, excluding organizer cash, amounts to EUR 16.4 million. That's on last year's level despite a significantly higher EBITDA. The reason is mainly fluctuations in net working capital. Generally speaking, though, we continue to expect approximately 100% cash conversion from EBITDA to operating cash flow. Cash-outs for operating investments amounted to minus EUR 9.1 million, that's slightly down year-over-year. And cash-outs for acquisitions amounted to minus EUR 22.5 million. There, approximately EUR 20 million were paid for the Honeypot acquisition, approximately EUR 2 million for InterNations.Cash-out for interest paid, foreign exchange and rent amounts to minus EUR 1.3 million. These are mainly our cost of rent according to new IFRS rules. And with that, free cash flow, excluding organizer cash and before dividend payments, amounts to minus EUR 16.6 million. Out of our cash balance, we've paid EUR 12 million in regular dividends and EUR 20 million in special dividends to our shareholders. And with that, total free cash flow before organizer cash amounts to minus EUR 48.7 million. That number obviously is driven by dividend payments and cash-outs for acquisitions. If you eliminate those, our free cash flows before organizer cash would have been approximately EUR 6 million.So to sum it up for Q2, we're keeping our strong member growth, which is important. We keep growing our top line, and our bottom line develops according to plan. We are confirming our EBITDA outlook, adapted for the Honeypot acquisition of approximately EUR 84 million. That's it for the numbers, and we are now happy to take your questions.
[Operator Instructions] We'll now take our first question from Patrick Schmidt from Warburg Research.
I would just would like to ask whether you could give some color on the growth momentum you experienced at the moment. Is it due to limited price increases? Or is it more the demand side? How do HR departments react when a salespeople comes by, basically? Do you have any feedback from [ indiscernible ] given the macro uncertainties? And could you add some color about Honeypot, the organic developments you see there? I mean I know it's early stage, but maybe you can add some information there, that would be great.
Patrick, this is Thomas. Growth development, as you see from the numbers and when you have 33% customer increase, we don't have a problem of penetration and so we do not really have a demand problem. We do have a little bit of supply problem in terms of salespeople. We really do see that we have too few salespeople on board. We had problems getting them, that's the reason we opened a new office in Berlin. We're even thinking of opening another sales office. That's the main driver why we are below in the B2B growth in E-Recruiting. Honeypot, I think we've given out numbers when we bought the company for -- that they are making about EUR 5 million revenues this year, of which EUR 4 million will be part of our revenues this year as we only acquired them the 1st of April. This seems to be in-line, in plan and no question there. The need for IT developers is unbroken, so nothing to add here. I mean this is a 3 years old company, and EUR 5 million in the first year is not so bad. Okay?
[Operator Instructions] We'll now take our next question from Catharina Claes from Hauck & Aufhäuser.
I'd like to you to elaborate a bit on the churn rates in B2C, whether you see any -- and in -- basic memberships. Then also if you could elaborate a bit on your full year -- yes, guidance. I mean you mentioned the range -- but range, but maybe you have any figures for that for us. And also what's your -- the EBIT on 2020? And I would also like to know if you could -- for the segment, you break it down a bit on payouts and earnings, what you see for the full year? Like generally, how the growth profiles are and how the margins are developing.
Catharina, this is Thomas. I'll take the first question, Ingo takes the second one. Churn rates are, if you take it sector by sector, are not increasing or any big changes. I think what we have for many years now is that obviously as the higher the mobile channel grows, the bigger the churn becomes because churn in mobile is higher than in that. But we are really overcompensating this with better operations. So overall, our churn remains more or less the same as [indiscernible]. And you see that we're always growing about this 5,000 to 10,000 per quarter on the B2C side when you talk about premium memberships. Okay. Handing over to Ingo for the other one.
Okay. You asked several questions regarding the full year 2019 and also the outlook for 2020. Now when it comes to -- for the full year 2019, we -- when we give an outlook, we focus on basically 1 figure. And that's absolute EBITDA, and that's the EUR 84 million. It used to be EUR 90 million organically or EUR 89 million organically before the acquisition of Honeypot. That's what we said in the February call. Then the Honeypot acquisition came along, and we said that this will have a dilutive effect of approximately EUR 5 million in EBITDA this year, so that's why we are now including Honeypot for an outlook of EUR 84 million. And that's what we are confirming. If you look at 2020, we have said in 2012 that we want to double again our revenues. So we've made a new full year outlook in 2012, and we said -- sorry, in 2016, and we said in 20 -- that in 2020, we want to be between EUR 275 million and EUR 300 million in revenues and EUR 100 million in EBITDA. That might include a few acquisitions, some minor acquisitions. We've done several acquisitions since then. And so this year, in February, we've said that we're confirming the EUR 300 million in revenues and the EUR 100 million in EBITDA. So that's the outlook for 2020, and that's what we're communicating at this point in time.
We'll now take our next question from Lee Mayer from Lord, Abbett.
Just looking at the growth of E-Recruiting revenues, if we strip out Honeypot, it looks as though the organic growth of E-Recruiting revenues is below the growth of your subscription customers. And I'm just wondering, in terms of looking on a more granular level of the subscription customers themselves, are we seeing a slowdown in the quarterly revenue per subscription customer? Or is the slowdown coming more from the job ad revenue side? But what's causing that growth -- that slowdown in the organic growth rate of E-Recruiting despite the fact that the number of customers continues to grow?
Yes. And a good question. This is Thomas. I think the job ad plays a role in there. Job ad business, in general, is less good than it has been in the last years. Overall, in the whole country, that has to do with the number of -- with the cyclicality. That's the only business where we do have a little bit cyclicality issue. So that's one of the issues. The other one is that obviously we have more one -- more customers with 1 product, which has little -- a lot to do that we are missing people on the account management side where we are -- we want to able to upsell in 360 or in bundles or in more products. So you're right. This is one of the things that we are currently looking in. Again, having more people, having more pull in upselling, this will help to hopefully grow on both sides, both the ARPU as well as the number of customers.
Is the average size of the customer getting a little bit smaller as you move forward? Or is it simply a matter of [indiscernible]?
Yes. That's the reciprocal logic about what I just said. I just -- if you have more 1-product customers, then you have a lower ARPU per customer. If customers are able to have more than 1 product or the number of products per customer gets higher, then this is where we won't need to -- where we need more salespeople for and where which we did not achieve in this last quarter.
It appears there are no further questions queued over the telephone at this time, sir. Considering there are no further questions at this time over the telephone, sir, I'd like to hand the call back over to our hosts for any additional or closing remarks.
Well, there's no more closing remarks other than I thank you for your time and the -- your interest in XING or the New Work SE. I wish you all a good day, and talk to you soon again. Bye-bye.
Bye.
Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.