Recruiter.com Group, Inc.
Q3 2021 Earnings Call Transcript

Published: 16 Nov 2021

[Operator:]

Good afternoon and welcome to Recruiter.com Third Quarter 2021 Earnings Call. As a reminder this call is being recorded and all participants are on listen-only mode. We will open the floor for your questions and answers following the presentation. On the call today are Recruiter.com's Chairman and CEO, Evan Sohn, CFO Judy Krandel and President and COO, Miles Jennings. The company would like to remind everyone that various remarks about future expectations, plans and prospects made on today's call constitute forward looking statement for the purposes of safe harbor provisions under the Private Securities Litigation Reform Acts 1985. Recruiter.com cautions that these forward looking statements are subject to risks and uncertainties that may cause their actual results to differ materially from those indicated including risks described in the company's filings with the SEC. Any forward looking statements made on this conference call speak only as of today's date Monday, November 15, 2021 and Recruiter.com does not intend to update any of these further statements to reflect events or circumstances that occur after today. The replay of the conference call will also be available through the investors relations section of Recruiter.com's website at investors.recruiter.com. With that I would now like to turn the call over to Recruiter.com's Chairman and CEO Evan Sohn for opening comments. Please go ahead.

[Evan Sohn:]

Thank you, Paul and to everyone on the call today. Welcome to our third quarter earnings call, our first full quarter as a NASDAQ listed company. And what a quarter it was from the closing of our successful oversubscribed $13.8 million uplift round in the early days of July, to the completion of two key acquisitions, the appointment of fantastic new team members and further expansion of our technology lead recruiting solution. These and other successes helped fuel rapid growth and an over 42% in sequential revenue growth for the third quarter. Before we get into some of the specific details from our third quarter performance, I like to take a step back and provide a brief overview of Recruiters.com for those less familiar with our story. Recruiters.com provide software and services to solve hiring challenges for employers. We deliver talent solutions to employers across the country, working with companies from startups to the Fortune 100. Our artificial intelligence powered software provides employers with a steady stream of qualified candidates for their open roles delivered to them. This software works by scanning over 150 million profiles, matching candidates for these open roles -- for these open jobs and then campaigning to them to get their interest. For companies that need extra help hiring we also provide freelance recruiters on an on-demand basis pay by the hour. Think of this like Uber for talent acquisition. We have recruiters on various projects that our clients getting paid for their services. These are full or part time positions whereby the independent recruiters that are part of our network provide talent acquisition services to these employers to help them fill their open roles. We believe our continued focus on the organic growth of our technology lead recruiting solutions will scale with the positive margin economics putting us on a clear path to profitability. Our revenues grew 124% over the prior year, the first nine months of 2021 driven primarily by a dramatic increase in our on demand recruiting solutions, and the transformation of our business with subscription based software. We believe we have strong momentum as we head into the end of 2021 and we fully expect our extraordinary growth trajectory to continue. I'll talk more about that in a bit. But first, I'd like to turn the call over to our CFO, Judy Krandel to go over our third quarter financial highlights in more detail, Judy?

[Judy Krandel:]

Thanks, Evan, and thanks everyone for joining today. Our revenue increased an impressive 43% sequentially from the second quarter of 2021 to $6.3 million. Our higher margin, higher growth software and marketplace subscriptions and our Recruiter on Demand segments accounted for over 60% of our total revenue in the third quarter. We generated strong growth in our marketplace solutions, up 360% and software subscriptions, up 165% over the second quarter. We also had nice growth in permanent placement fees, up 114% over the second quarter. Our gross margins improved over 36% in the third quarter, up from under 33% in Q2. While we saw a big swing in our net income and EPS, it's important to note that this includes a large amount of non-cash items, including a $2.5 million impairment expense and $1.9 million in share-based compensation. When looking at our EBITDA for the third quarter, in addition to the nearly $4 million in non-cash charges just mentioned, we've adjusted for other non-cash and one-time expenses, giving us an adjusted EBITDA loss of under $1.3 million for the quarter. So, overall the consistent pattern that were showing a double digit sequential revenue growth that we are seeing, combined with continued gross profit expansion has clearly vectoring towards profitability. Looking at the third quarter, while we grew revenue by more than 40% over the second quarter, gross profit expanded by 60% to $2.3 million. And with average adjusted operating expenses of around $1.3 million, gross profit is trending to meet operating expenses. It's important to note that the acceleration of revenue growth and margin expansion we're seeing is being partly fueled by investments we've made with the capital raised over the summer. Our product offerings addressed the biggest challenges facing the reopening of the economy, including the shifting dynamics of the job market, and incredibly tight job market and highly skilled labor, a shift from in person to remote work opening up the work from anywhere theme, the lack of lower hourly workers seeking to re-enter the job market and the increasing voluntary employment churn resulting the potential for a great resignation of employees. As Evan said, we have incredible momentum right now and we fully expect our extraordinary growth trajectory to continue. Now I'd like to turn the call over to Miles to review some of our key operational metrics, including the accelerating growth of our high margin software subscriptions, and Recruiter on Demand segments. Miles?

[Miles Jennings:]

Hey, thanks so much, Judy. And thanks everyone for joining. So over this quarter, we have improved the diversity of our clients as you can see in this chart of our industries. Our technology is our largest vertical at 20% of our business and healthcare coming in at number two. Overall, we believe there's a tremendous opportunity for continued market share gain in each industry group listed here. Our significant growth in new customers in the third quarter, and the change in average spend are a direct result of our shifting focus toward our higher margin, higher growth software subscriptions, and Recruiter on Demand Solutions. You can see that we went from over 60 customers to over 300, while our average spend still lands at over $8,000 per client. For the next quarters we do expect the average dollar spend per customer may fall as we continue growing our marketplace solution offerings that have a lower average cost, but with higher margins. However, we do expect the number of overall clients to continue to increase. Overall, we have a strong trend line of new customers and client expansions and we're confident in our ability to continue growing organically. Next slide. Overall revenue mix has changed significantly over the third quarter from Q2. Our software grew over 100% and marketplace solutions over 360% while on demand recruiting continued at strong growth at over 90%. On demand revenue now comprises over 50% of our overall revenue mix for the first time, while software and marketplace solutions are now about 12% of our overall revenue. We will work to continue this trend toward our higher margin segments and products. As part of that shifting focus, we've de-prioritized our lower margin less scalable consulting and staffing services that we consider our legacy business. As we clearly are seeing results from this strategy, as our largest revenue segment is now our higher margin Recruiter on-Demand Solution, which grew more than 90% over the second quarter. Next slide. As Judy said earlier, the shifting dynamics of the job market, an incredibly tight job market and highly skilled labor, a shift from in person to remote work, opening up the work from anywhere theme, the lack of lower hourly workers seeking to re-enter the job market and the increasing voluntary employment churn resulting in the potential for a great resignation of employees; all these challenges are leading to really what's a very high demand for recruiters. As I mentioned a moment ago, we grew our Recruiters on Demand segment more than 90% over the second quarter. This represents now five consecutive quarters of near triple digit or higher sequential growth and we see no reason for the momentum that we have here to slow down at this point, as we have a confluence of supportive trends likely to fuel continued growth, including a year-over-year near seven-fold jump in Recruiter job postings as of June this year, and over 364,000 recruiting jobs advertised on LinkedIn and a doubling of recruiters getting hired from other recruiting jobs. We are further addressing high demand in recruiting and the shifting dynamics of this labor market with our growing suite of technology solutions. Our high margin software solutions and marketplace solutions segments together contributed nearly $800,000 in revenue in the quarter from under 250,000 in the second quarter. This represents 164% and 360% segment growth respectively. These are highly scalable components of our offering and we believe we're really just getting started in this exciting area. Judy and Evan have already covered much of our highlights from the quarter. But as a quick recap, of course, a significant milestone for the company was our listing on NASDAQ at the start of the quarter, and the upsize $13.8 million offering we closed in conjunction with the listing. In the process we also simplified our capital structure and completely eliminated our D and F preferred share classes. Operationally, we continued our strong growth trajectory with revenues up over 40% sequentially from the second quarter with further margin expansion as gross margins improved to nearly 37%. As I just covered a moment ago, our highest margin segments software subscriptions and marketplace solutions grew 164% and 360% respectively over the second quarter in our largest revenue segment. Recruiters on Demand grew over 91% from the second quarter to more than $3.4 million. The capital we raised in conjunction with our uplist played a very important role in completing our third quarter acquisitions of the Novo Group and the technology division of Uncubed. Other notable highlights from the quarter include the addition of Xuan Smith, and Angela Copeland to our leadership team. Xuan brings over a decade of technology leadership experience to his role as CTO or Chief Technology Officer, including positions at multiple startups. While Angela's impressive background in digital marketing, customer acquisition and organizational strategy, including in the career space very specifically, are great assets to a role as VP of Marketing. Another exciting development from the third quarter was our launch of our new product Amplify, which is an AI powered solution for candidate outreach that leverages our AI software to search and market to passive candidates, which transforms job postings into a very active talent identification and engagement process. We also made some really good technology improvements. We improved the scoring engine of our AI software to find less obvious profile matches, creating custom machine learning models to analyze millions of data points across companies and candidate profiles for each job search. Our AI indexable database now includes, as I've mentioned, over 150 million candidate profiles. We're also very excited about the third quarter launch of jobs.recruiter.com, a new career community for recruiters and talent acquisition professionals. We believe this community will support the increasing demand for Recruiters on Demand, while also enabling employers to market their own recruiting roles through online listings. As you can see, there's just a lot to be excited about as we build on our momentum moving forward. We had a great quarter. And I will now pass the call back to Evan for his comments on industry trends and more of the macro environment.

[Evan Sohn:]

Thank you, Miles. Besides looking at the general market conditions, Recruiters.com creates its own research as well as we present this data to various publications and you might have caught our video segments on CNBC or Yahoo Finance around the job support. We see here our recruiters sentiment index taken from our monthly survey of recruiters in our network. Since the beginning of the pandemic, you could see that the sentiment has continued to improve to where it is now a 3.9 from over 5, from a higher -- from a total of five. New this month we partnered with Revelio Labs to include job demand data. Interesting to note, recruiters actually number three on the list for the most in demand jobs. There are a series of key macro industry trends that we believe should support our continued strong growth. These include the reopening of the economy, with about 9 million still unemployed and over 10 million jobs open, there is an immediate demand for recruiters. The great resignation is another significant trend. An estimated 4.3 million people quit their jobs in August and current polls show that 40% of Americans are looking for new opportunities. Then there is the job hopper economy. An estimated 60% of millennials say, they're willing to leave their job within the first six months. Economists expect a lasting impact on work tenure from this trend, and of course the overall demand for recruiters. As Miles mentioned, according to LinkedIn, there's a higher demand today for recruiters than there is for software engineers, and we have solutions to address the soaring demand. With a wealth of opportunity in front of us, we are focused on several key initiatives that will help deliver us to the opportunity. First, our continued drive to maximize efficiencies in our operations. We are focused on developing excellence in our supply chain of service delivery, and our increasing use of key metrics to gauge our improving performance. As our business grows, so does our data and we're using our own artificial intelligence technology to leverage our in-house data, improving analytics and creating more efficient processes. Our shift towards higher margin, higher growth software subscription solutions, is a highly scalable component of our business now leverages our platform to more fully align with market requirements, which will enable us to scale up faster and bolder. We have a high backlog of demand, which creates the opportunity to scale and replicate our successes, while unlocking the potential for new cross sell opportunities. I couldn't be more proud of our entire team, and the tireless work they put into positioning us for long term sustained growth. As I said earlier in the call, we believe we have incredible momentum as we come to the end of 2021 and we fully expect our extraordinary growth trajectory to continue. I want to thank our shareholders for their continued support. And thank you everyone on the call today for their time and continued interest in Recruiter.com. We would like to now open the call for questions.

[Operator:]

[Evan Sohn:]

Is there a call from David Greenberg, David, is that you?

[Operator:]

Yes.

[Unidentified Analyst:]

Yes. Hello. Can you here me?

[Evan Sohn:]

Hey, David. How are you. Yes. We hear you.

[Unidentified Analyst:]

Hey, guys. So my first question is just how do you guys plan to approach sales and marketing? Can you just detail what the structure of your team looks like now and then maybe some markets you're trying to target?

[Evan Sohn:]

Certainly, in the slide deck that accompanies the call, it sounds like you're actually in a car. We gave a good example of our customer breakdown. Right now, the IT segment represents under 25% of our total customer base. So we're pretty nicely diffused and dispersed around lots of different industries, life sciences, technology, financial services, biotech, startups, et cetera. So we're really nicely positioned from a market capture perspective. Part of our use of proceeds of the NASDAQ round was investing significantly in our sales and marketing. I think we've tripled the number of folks in our sales department, our customer success team has grown probably by threefold, and our marketing team also has grown significantly. What's interesting that you asked, David, is that as Recruiter.com, we really have this incredible brand. And while most companies spend lots of money sort of building out their brand, we already have this brand. In fact, the origins of Recruiter.com really was a media and marketing company. And as a result, we have tremendous amount of SEO traffic that comes to our website on a daily basis, we run four of the 10 largest LinkedIn groups, our community of recruiters and HR professionals is over 850,000 people strong. So we really have just this incredible marketing, back backbone. And what we're really doing with folks like Angela, who recently joined the company, is really building out marketing campaigns that capitalize on the inherent and organic traffic that we get today. So we are tracking very closely our customer cost acquisition, as we increase our overall customers. And as you saw in the graph, if you note at the end of Q2, we ended off at around 90 customers and now we have over 300 customers. So really incredible growth since NASDAQ leveraging really are the investments that we made in sales and marketing. So thanks, David, for your question. Really appreciate it. And appreciate your support.

[Unidentified Analyst:]

Thank you.

[Operator:]

Would you like to make some closing comments?

[Evan Sohn:]

Yes. I always -- yes, and thank you again, thank you again for hosting this call. And thanks to our partners over at Sequire for hosting the overall webinar itself. I want to thank the management team, our auditors, accountants, et cetera. and of course our shareholders who have been following the company for a while and really thanking us -- thanking them for their dedication and support of Recruiter.com. I could not be prouder to be the company's CEO and as Chairman. A little over a year and a half ago I sat down with the board looking at the opportunity, I was still Chairman of the company, and really recognize the pandemic and its impact on the overall job market. And I said to Miles and I said to the board, when this is all over and the pandemic is finished, the world starts to come back to normal, the job market is going to be in complete disarray. And who better than a company called Recruiter.com help the economy get back working, who knew would be this much of a disarray with the massive numbers, people are unemployed, get the job openings and job, work from anywhere, hire from anywhere and all the other trends we talked about in this call. Now really is the time for Recruiter.com. Our numbers are really showed the growth that we have leveraging our software on our platform, and really the overall demand that we're seeing from the marketplace and we look forward to continuing to deliver great results to our shareholders, and really helping people and the candidates that we place that jobs are really find meaningful work. So thanks again, Paul, and thank you to everybody who joined on the call today.