© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and welcome to the New Work SE Analyst Call Quarter 3 Results 2019 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Thomas Vollmoeller. Please go ahead, sir.
Hello, and welcome to our Q3 trading update. Today, I will guide you through this conference as Ingo currently enjoys a short 2-month sabbatical and will be back end of December. Let's kick off with the key messages for today: a, our financial results developed nicely in Q3; b, we observed sound operational performance among our core segments, i.e., our core assets, both in B2C and also in B2B; c, our short- and midterm outlook for 2019 and 2020 remain unchanged. Now let's get started with a look at our past quarter's core financials. Our group service revenues came in at EUR 68.2 million, a 17% increase over Q3 last year. 15% if you exclude the Honeypot acquisition. At 22%, profitability grew 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 Q3 2018. Also, operating cash flow conversion remains high. Cash flow is up 6% year-over-year. Let's have a look at some of our quite promising operational achievements. Over the past years, we have always shown you 2 nonfinancial KPIs in our core B2C segment, member and payer growth on XING. Going forward, we want to provide you with a broader set of different KPIs that are important to us and to our positioning as thought leaders in the changing world of work. In today's call, we therefore also want to highlight first time the development of employer insights, which kununu provides for people who want to get a better understanding about companies they might be interested in working for. But XING members first. We added almost 450,000 net new members during the third quarter and around 7,000 paying members. Overall, this is an extremely healthy growth. As a result, we are serving 17 million members at the moment, and we will continue to increase our reach and penetration also in the coming years.As mentioned already, we strongly believe that at New Work SE, we create value beyond networking events, job matchings or news. Therefore, we show you here today the development of employer insights at our kununu platform as this is highly relevant and extremely valuable information about the quality of thousands of different employers in Germany, Austria and Switzerland. We now significantly improved and increased those insights beyond the classical reviews by adding salary as well as cultural insights to employer branding profiles on kununu. Thus, the content on kununu rose to over 3.2 million workplace insights that really matter and will enable professionals to choose the right employer. B2B e-recruiting customers is growing strongly. Like always, we are reporting a development of our subscription customers in our e-recruiting segment, shown on the left. As you can see, we continue to add significantly more new customers to our different recruiting solutions, like 360, Employer Branding or the XING TalentManager. Year-over-year, this number increased by 25%. If you look a little deeper, we observed that our subscription products, like Employer Branding Profile, continue to grow very strong, while our transactional products like job ads are moving slower. There, we do see some cyclical softening as the market volume for job ads appears to be flat this year due to the weaker economy in Germany. Also, we see longer sales cycles with XING 360 as the job ad flat fee is part of the 360 offering. Today, I also would like to show you some other very promising numbers as, for instance, the customer additions for our Prescreen product, which nearly doubled within the years’ time frame. We are probably already now one of the biggest players in the very fragmented European applicant tracking systems market. It is also great to see that the need for modern ATS solutions continues to remain high and therefore, seems to be resilient to any economic volatility.In today's call, I also want to provide you with the respective customer growth at Honeypot. Obviously, they and we at the New Work SE have been very busy with EPMI during the last month. We mainly worked on the integration into our e-recruiting sales processes. We increased the organization for talent and client management and launched a new site in Vienna. We might be launching 1 to 2 additional venues either the end of this year or beginning of next year. Customers who use Honeypot to recruit tech talent has grown within the last 12 months by over 50% to nearly 1,800, and we expect this number to accelerate going forward.Let's do a little deep dive now as we presented quite some new offerings at the major HR fair, Zukunft Personal, in Cologne 2 months ago, where some of you also participated. At Zukunft Personal, our main topic was employer branding and the way we reinvented this year our employer branding offering in 3 different areas. First, at kununu, we introduced a culture analysis for companies; we revamped the kununu company profile; and we pushed forward kununu engage, a tool for continuous measurement and improvement for employee engagement. How does the culture analysis for companies work? Like our classical employer ratings of kununu, the culture analysis is also based on assessment of current or past employees of a company. In the culture analysis, they evaluate 4 dimensions, which are leadership, strategic direction, interpersonal relationships and work-life balance. In these 4 dimensions, the employees anonymously select a maximum of 40 out of 160 cultural characteristics to describe their employer's culture. The result is shown in a culture compass, as you can see on the left side, with a lot more detail if you look 1 or 2 levels down. The second area was marketing solutions. We rolled out the XING Brand Studio to help companies setting up and executing a powerful employer branding strategy. How are we doing this? We have set up an in-house agency that offers comprehensive consulting services. They develop holistic campaigns for the customers in order to help them find and recruit candidates that fit their culture. And this service at the end is supposed to support our recruiting and advertising services. And the third area where we introduced new employer branding was XING E-Recruiting. We introduced this new XING brand manager to help companies address candidates on XING more effectively. How does this work? Already today, more than 6,000 employers present themselves with a professional employer branding profile on XING and kununu. But many other companies still do not know what they really stand for or even more, how they can communicate their value proposition to potential talents, especially in small and medium-sized business outside of big cities. With the new brand manager, individual applicant track target groups can now be addressed more precisely. And for example, company news can be played out more accurately. All results are then monitored in the form of a performance analysis. Moving to our B2B Marketing Solutions & Events business with a focus on Marketing Solutions today. In the Marketing Solutions subdivision, we continued the AIO, the ad inventory optimization rollout. Further replacements will be created in different sections of our website, and existing integrations will be optimized. The results in terms of CTR, eCPM and activity are convincing and much better compared to our display ads. This led to the decision to say goodbye to display ads at the end of the year so that display ads will be fully removed as of December 31. As a result, we might experience a short-term year-over-year growth dip in Q4, which will recover quickly beginning of 2020. Overall, we actively reduced ad pressure for our customers and will be addressing larger customers with higher ticket sizes. That is one of the reasons why we might stop reporting B2B customers for this segment going forward. Let me now talk in more detail about our financial results on behalf of Ingo, who, as I mentioned, cannot join us today. Generally speaking, we are very well on track to deliver our EBITDA guidance of EUR 84 million or even above for this year. As usual, let's start with an overview of our quarterly P&L. And comparing to prior years, please remember that we have changed our structure at the beginning of the year to explicitly state capitalized own work. Service revenues came in at EUR 68.2 million, up 17% versus Q3 2018. This growth includes the effects from the Honeypot acquisition, which contributed 2 percentage points. Organic growth in service revenues was at 50% -- 15% versus prior year. EBITDA amounts to EUR 24.2 million, up 22% versus prior year. This includes a negative EBITDA impact of EUR 1 million from Honeypot, which is in line with our full year projections at the time of the deal. Q2 EBITDA margin on total revenues is 35%, including a diluting effect from Honeypot of 1.9 percentage points. With these numbers, we are confirming our full year guidance with an EBITDA of at least EUR 84 million, including Honeypot. Reported net income amounts to EUR 4.0 million. This includes an impairment for our kununu US business of EUR 5.6 million and related tax effect of minus EUR 2.8 million, summing up to a total impact of minus EUR 8.4 million. Net income adjusted for these effects amount to EUR 12.4 million, up 36% versus prior year. A quick comment on the onetime impairment of kununu US. Already in 2019, we took over all the shares of the kununu US joint venture of our former partner. Decisive for this were changes to Randstad's acquisition of our former joint venture partner, Monster, Inc., and Randstad's changing strategic priorities. Following the acquisition of all shares, the new starting position for the U.S. business, we have decided to write down the amount of EUR 8.4 million. The write-down is split into EUR 5.6 million for depreciation on assets and EUR 2.8 million for depreciation on tax loss carryforwards. And as all of you know, the impairment charge is noncash, nonrecurring and does not affect our core business in the Germany, Austria and Swiss region and our revenue and EBITDA targets for the group. Remember, we always stated that this is a test for us. And so the U.S. will remain a test market for us, as communicated at the launch in 2016, and we will continue to operate www.kununu.com/us going forward. With these results, reported earnings per share amount to EUR 0.7 or EUR 2.2, excluding the above-mentioned impairment impact. Depreciation amounts to EUR 12.6 million. The main driver here is the onetime impact of the kununu US write-off of EUR 5.6 million. Overall, we have EUR 6.7 million in PPA depreciation from acquisitions, including the kununu US effect. Adjusted for the kununu US impact, increase in D&A is in line with overall company growth. Our financial result amounts to minus EUR 0.4 million, which is mainly driven by included interest for earn-out accruals. Let's now take a more detailed look at segment-by-segment growth in service revenues. B2C revenues were at EUR 25.9 million in Q3, up 2.4% versus prior year. This is slightly lower than in previous quarters, but still in line with our expectations. B2B E-Recruiting revenues were at EUR 36.5 million, up 30% versus prior year. To this overall growth, Honeypot contributed 3 percentage points, i.e., organic E-Recruiting came in at 26%. As already mentioned in my initial overview, we see here the cyclical impact of our transactional jobs business. Given the continued strong development of our subscription customer base and the ongoing favorable structural trends in the labor market, we remain very positive for the future development of this segment. Finally, let's take a look at B2B Marketing Solutions & Events. Revenue amounts to EUR 5.9 million, up 24% versus prior year. Here, we remain on the strong growth path we have seen in the last quarters, driven by an increased focus on larger customers and a transition from display to native advertising. As mentioned before, we do expect a slightly slower growth quarter in the segment in Q4 related to the completion of this transition path.Let me give you an update on the development of our cost along the different cost categories. Again, please remember that we have consequential changes from our new P&L structure. Personnel costs as well as freelancer costs included in other operating expenses are now shown before capitalization. Personnel costs before capitalization amounted to EUR 32.8 million, equivalent to 48% of service revenues. If you deduct capitalization, personnel costs would amount to around 39% of service revenues. The relatively strong increase before capitalization of 24% versus prior year is driven by 2 factors: first, the inclusion of Honeypot, which accounts for EUR 1.3 million of the total increase or 5 percentage points; and a deliberate decision to replace external freelancer capacities with internal staff. The counter effect of this decision, you can see in the decrease of other operating expenses versus Q3 2018. The combined growth of personnel costs and freelancer costs ex Honeypot amounted to 14%. We added a total of 312 FTEs versus prior year. There are 222 organically. By segment, this means 126 in B2C mainly in product and engineering; 25 in B2B, which is in E-Recruiting, mostly sales marketing but also some product and tech; 22 in B2B Marketing Solutions & Events across all functions; and 49 in the rest of the organization. When we look at marketing costs, they came in at EUR 7.4 million or 11% of revenues, up 16% versus prior year, in line with overall growth. Finally, let's have a look at other operating expenses. As you all know, this as usual includes external services, in particular freelance development costs, which we deliberately reduced year-over-year; legal audits and consulting; payment processing; server hosting; as well as miscellaneous cost items. In Q3, we have seen a decline of other operating expenses of minus 7% versus prior year, landing at EUR 11.6 million or 17% of revenues. As mentioned before, this is caused by the deliberate conversion of external freelancers to internal development staff, mostly in our nearshoring locations in Spain and Portugal, which yields us a net cost benefit. Freelancer costs have been reduced by EUR 1.1 million versus prior year. To conclude our financial numbers, let's take a look at cash flow. Operating cash flow, excluding organizer cash, amounts to EUR 18.3 million, up EUR 1 million year-over-year. We therefore continue our track record of strong cash conversion in the vicinity of 90% to 100%. Cashouts for operating investments amounted to EUR 9.4 million versus EUR 7.5 million in Q3 2018. Cashout for acquisitions was at minus EUR 0.2 million, which related to a correction in the cash and debt-free calculation in the Honeypot deal. Cashout for interest paid, foreign exchange and other rent -- and other and rent amounts to minus EUR 1.1 million. These are mainly our costs for rent. With these effects, total free cash flow before organizer cash amounts to EUR 7.6 million. That's it for the numbers. Let's have a look at our current outlook for 2019 and 2020. But before that, I would like to show you a few statistics that we have seen in a recent media article and would like to share with you as well today because both analysis underpin our overall conviction about the ongoing tightness of the labor market and the challenge for companies to identify and recruit talent. This slide, candidate supply remains scarce, shows impressively what happened during the last 4 years. Despite an almost peak employment, you remember, we have about 45 million working professionals in Germany as of now, the number of unfilled positions has even increased further to almost 1.4 million. As a result, in -- Germany is facing fewer and fewer job seekers per vacancy. Where does this lead to? On this slide, you can see a few examples for job roles and how long it takes to hire people within these professions at the moment. It takes 160 days for the companies to find an IT or software talent, 140 days for technology specialists, et cetera. So independent of the current, more volatile market environment, which also affects parts of our transactional e-recruiting business, we continue to strongly believe in the power and effectiveness of our different employer branding and recruiting solutions going forward. What does all that mean for our 2019 and 2020 targets? Not really much. This is why we confirm our EBITDA target of EUR 84 million in 2019. It might be even slightly better than that given our strong third quarter. Regarding full year service revenues, we believe we can achieve similar growth rates as we had the first 9 months and also in Q3 of around 17%. For 2020, we also confirm our targets, which, by the way, we originally gave out in 2016 of well above EUR 300 million revenues and an EBITDA of EUR 100 million. And last, but not least, I would like to tell you that we are extremely excited and happy having finalized the CEO search process. Petra von Strombeck, who some of you might know quite well already, will join us as a member of the Executive Board from January 1. It is planned that she will take over the CEO position with the conclusion of the AGM in May 2020. I know Petra for quite a long time, and I'm extremely excited and happy that she has made it through this very demanding CEO search process, which took us over 5 months. And not only that I know Petra. I love to work with her. I admire her energy level and I trust her 100%. She has a great business sense and she practices a very honest and direct communication. She is the perfect match for our company, and I'm certain you will see it the same way. And obviously, she has a great track record with Lotto24, because she has been the driving force from the IPO back in 2012 at EUR 3.4 to where Lotto24 stands today worth EUR 16. So we as a management team really look forward to work with Petra. And for me, I personally look forward to a friendly and constructive handover period with Petra until the conclusion of our AGM end of May next year.Well, this concludes our update. And now I'm happy to take all your questions.
[Operator Instructions] We will now take our first question from Patrick Schmidt from Warburg Research.
You were just talking about the transactional business within your B2B segment. Could you maybe give us an indication about the share within that segment? And also, we see the net add subscription service number coming down from above 3,000 to almost more like 2.6, which is an indication for me that also your subscription services might lack some growth momentum currently given the overall economic perspective. You already said that you feel confident going forward. But could you give us an indication of what should happen in terms of overall economic slowdown linked to your growth profile? That would be great.
Yes. Thanks, Patrick. Transaction is less than 1/3 of our e-recruiting business currently, especially if you include Prescreen and Honeypot. But even if you take the classical, what we call, e-recruiting business, less than 1/3. That business is relatively flat these days. It's still growing, but very, very, very little. So the portion of this transactional business will continue to decline, which is not bad from a predictability point of view. But obviously, we would love also to see that growing in a better rate.The subscription number of customers is a little bit down, you're right. If you take it from a revenue point of view, it's not. We are seeing very nice, more than 30% growth rates in that area. Sometimes you do have price increases in here. You have a mix problem in here. So the number of subscription customers doesn't worry us at all. We see that really very healthy going forward.
We will now take our next question from Sarah Simon from Berenberg.
Two questions. One is on Honeypot. What defines the customer? Is that somebody who's paid you during the quarter? Or is it a rolling 12-month figure? Or is it people who are searching? That was the first question. And then the second one was on the shift from display advertising to native. When you said there will be slower growth in Q4 but if it's all switching off in 2020, do we need to kind of adjust our 2020 numbers to take out some display that's still left behind that won't be fully compensated? How should we think about advertising growth next year?
Sarah, this is Thomas. So taking the second question first, no, you don't have to take out anything. We keep on our very nice north of 20% growth in advertising. This is really a shutdown thing of the fourth quarter now because we really have to take out display and then go full-fledged into the next year. So nothing to worry about in terms -- or nothing to change on the growth rates for 2020 in advertising. The active customers of Honeypot are people -- are customers who are searching with Honeypot, actively searching with Honeypot, not necessarily who are paying that. We're only getting money if there is -- if there would be a pay. Certainly, if we would have all 1,800 customer paying us, we would have a higher revenue number than we do have. So it's really customers only -- searching with us at that time. Only a significant percentage of those really makes a hit, and then they have to pay.
[Operator Instructions] We will now take our next question from Nizla Naizer from Deutsche Bank.
Great. A couple of questions from my end. The first is on B2B E-Recruiting. You mentioned that the vacancies are still high in Germany. And given that context, what sort of products are your B2B E-Recruiting customers most interested or eager to have a conversation with you about? And are you also seeing a lot more interest from the small and medium sort of customer base in Germany? So if you can give us an idea as to where you think the growth could come from in the future and what your strategy is to go after that growth, that would be great. The second question, could you remind us again what the incremental revenue from Prescreen and Honeypot is? Like the magnitude of it in the B2B E-Recruiting business on an annual basis, some color there would be fantastic.
Nizla, this is Thomas. So first of all, the -- what we do see is that we -- and taking the first question first, is that our main growth area is in this German SME market. It's all -- they're very small companies. It's not in the big company. Big companies we all have. Both LinkedIn and us have -- well, 100% penetrated the big companies in Germany. So all our big growth potential is in the SME market. This is between, I would say, 200 and 1,000, probably even 1,500 employees. That's the -- that's where we really have a lot of penetration potential. We always say 75,000 customers, which we can reach. We are at 15,000 or whatever. So there is huge, huge potential to go forward. The other question on the product was what product they are asking us for, well, obviously, as I said, we -- our subscription products are really growing nicely on this 30% plus growth rate. It's this active sourcing talent pools, TalentManager on one hand and Employer Branding on the other side. These are the products that people want because they're strategic products, where they really can fill in strategic products. What we do see in that, I mean we had this discussion before, is that the entire market for job ads is flat. And there, you do see that some businesses do not have an actual hiring request, hiring need. It's nothing to do with the Google for Jobs situation, I'd say. That's more taking out the bubble of the -- or the money per job ad. It's really that we do see that the actively sold job ad is very flat this year versus the other years. And the years before, it was growing, and we were obviously growing with it. So it's not this very short-term, short-notice job ads that people are looking for. They're really asking for long-term state-of-the-art e-recruiting businesses. So now in terms of Prescreen and Honeypot, people are counting and calculating on the site. Can you give me some numbers? Sorry, I just -- first, just wait a second. Okay. Well, people are still calculating before I say something wrong. These guys are much bigger with the numbers.
It's about 5%. That's the share right now.
For full year this year.
For both Prescreen and Honeypot?
Yes.
[Operator Instructions] We will now take our next question from Catharina Claes from Hauck & Aufhäuser.
Can you maybe elaborate on -- so you said that job ads were flat. I think in the last quarter, they were decreasing a tiny bit. Is it like literally 0% growth? Or how much would that be? And then for Honeypot, you mentioned that the number of customers that do, can you elaborate a bit on how the revenue behaves potentially maybe? Yes, I think that's it for me.
Well, job ads, as I said, it's still growing, but single-digit, low single-digit numbers growing. Overall, the revenue, I think -- I mean, you have the overall revenue for the e-recruiting business. If you detract the 5% for Prescreen and Honeypot, then you have a pretty good indication of how the revenue develops.
We will now take our next question from Mark Josefson from Pareto Securities.
On the acquisition of Honeypot, you outlined some investments that you need to do in order to bring that business up to where you want it to be. Can you update us on where you are down the road? I mean you highlighted or flagged some costs excluded in Honeypot, which I've missed. But how much exceptional or investment costs have you already done? And how much is still to be done in 2019? Will there be any additional investment costs for the Honeypot business abnormal in 2020?
Yes. Yes, this is Thomas. So I think the number I gave you for Q3 was EUR 1 million additional invest in Honeypot last quarter. That is pretty much what we have invested also in Q2. They will be somewhere in the area of EUR 3 million to EUR 4 million revenues this year, which will be allocated to our numbers. Remember, we only bought them in April. And yes, we will have additional investment next year as we want to grow them very dramatically over the next years. So there will be a significant, I would say, somewhere between -- what is it at just EUR 5 or 6 million?
Yes.
Sorry, EUR 3 million to EUR 5 million investment next year in Honeypot.
Okay. So there's not an incremental -- what I was getting at is not -- there's a continued investment in the business, of course, but there's not a step-up in the...
No. No. No. It's the same -- it's pretty much the same magnitude of this year. We're making -- we're growing significantly obviously top line. The negative effect next year will be pretty much the same effect as this year. So EUR 3 million to EUR 5 million 4 quarters, pretty much the same size. But obviously, you want to, well, triple or whatever the business next year.
As there are no further questions in the queue at this time I would like to turn the call back for any additional or closing remarks.
Well, thanks for your time. Thanks for keeping up with me without Ingo. Next time, Ingo will be with me again. Thanks for your trust in the New Work SE. And well, have a great Christmas, and we'll talk to you next year. Thank you. Bye-bye.
Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.