New Work SE

XETRA:NWO

Earnings Call Transcript 2021-Q2

[Operator]

Good day, and welcome to the New Work Se Q2 Results 2021 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to CEO, Petra Von Strombeck. Please go ahead, ma'am.

[Petra Von Strombeck, Chairman of Executive Board & CEO]

Good afternoon, everyone, and welcome to our Q2 update. I hope you're all healthy and well. My name is Petra, CEO, and next to me is Ingo, our CFO. In our last quarterly update, we were cautiously optimistic about the pandemic situation improving, and we were right. In Q2, we experienced an ongoing stabilization. Of course, the general environment remains challenging and rather uncertain, particularly in terms of the spread of the delta and other variants, but we remain cautiously optimistic that this positive trend will continue. Let's have a brief look at our main financial and operational achievements during the first half of 2021. The key message today is that we have started growing again in Q2, after experiencing declining revenues last quarter. And if we take a look at our main bottom-line figure, which in Q2, like Q1, essentially do not differ between the reported and pro forma figures, we have seen a strong increase in EBITDA as well as net income. Moreover, when we consider our core operational stats, we continue to see solid growth in terms of same-platform members and really strong growth regarding the number of workplace insights on our second C-destination, kununu. For our B2B E-Recruiting segment, one of the most relevant KPIs for future revenues is the development of subscription customers, and I'm happy to report that we also recorded a new increase in customers again in Q2. Here, you can see a snapshot of our most important financial KPIs year-on-year. After we had to post declining year-on-year revenues in Q1 due to the pandemic for the first time in our history, we already see 5% growth to EUR 71 million for the second quarter, which is earlier than expected. Looking at our bottom line KPIS, the EBITDA and net income we posted represents a significant increase compared to last year, resulting from a shift of investments, cost reductions, and the spill-away effects from the small-scale restructuring carried out last year. Let's now have a look at our most important C-destinations, XING and kununu. First, let's consider our business networking destination, XING. Our member base continues to see solid growth, climbing to EUR 19.5 million as of the end of Q2. That's an increase of about 1.4 million net new members during the last 12 months. This is the net figure. The actual figure is actually EUR 1.6 million, adjusted for the onetime cleanup that we out carried in Q1 this year. So we remain the largest business, [ XING ], in the German-speaking region, particularly in Germany, and are further expanding our lead here. We will continue to add working professionals in the German-speaking region, not only to help companies find talent, but also to guide our [ business ] for an ever-changing world of work and help them achieve a better working life through discovering job opportunities, content, and valuable industry insights. For example, our weekly content format called [ Zukunft Machen ], or Creating the Future, provides weekly news and articles on current topics, and now enjoys the highest ratio of shares, comments, and likes. Now we move on to kununu, currently our strongest growing C-destination. As most of you know, kununu is Europe's leading employer rating platform, with a clear focus on Germany, Austria, and Switzerland. Its vision is to empower people to choose the right company for them, with workplace insights that matter. Throughout the second quarter, kununu even slightly accelerated their content growth by adding almost 400,000 additional workplace insights. Year-on-year, they added 1.4 million new workplace insights, bringing the total number to 5.4 million. We continue to further strengthen kununu's position by enabling users to better assess their individual market value through more than 1 million salary for thousands of job roles that kununu has collected over time. Since a few weeks, kununu has been presenting salary information outside of specific company profiles, thereby offering a much better overview to the general salary situation of certain occupational groups. The salary data is available for 20 job groups in Germany and 10 each in Austria and Switzerland, and this is gradually being expanded to include other professional groups. These groups include software developers, [ clerks], accountants, electricians, marketing managers, educators, HR managers, and geriatric nurses. With this offering, we don't just provide more transparency. We provide the basis for more fairness, and at the same time, help users to make the right job decisions. In a nutshell, the combination of kununu employer reviews, corporate culture information, and salary data enables employees to build up a much better picture as to whether a company is a good fit for them.As you know, one important indicator of future revenue development is the development of our B2B E-Recruiting subscription customer base. Usually, corporates sign up a 12-month subscription package for our various branding and recruiting solutions. And as you are aware, the growth momentum stopped immediately with the onset of the crisis at the end of Q1 2020. Since then, we even lost a few customers on a net basis in the course of last year. In Q1, we have posted a minor growth in customers again. And now I'm happy to tell you that this stabilization has also continued throughout Q2, with another small net increase in customers. Usage of our existing customers is going up as well. Best-growing products are prescreen, employer branding, and also, our transactional jobs listing business. As a result, the segment grew by 7% again. Of course, we still need to add another few hundred customers to compensate for the coronavirus-induce declining customers, but thanks to the visible recovery of the German employment market, we are optimistic about further growth going forward. Another positive sign of recovery is coming from our B2B Marketing Solutions and Events segment. After a hit during the pandemic, our Marketing Solutions business already went into recovery mode at the end of last year, and this continued to be the case throughout the first half of this year. Our video ad format particularly helped to accelerate growth again. Today, we are even above pre-pandemic levels. When looking at our Events Ticketing business, Q2 also marks a positive inflection point. With increasing visibility concerning a further easing of lockdowns and distancing measures, event organizers have returned and get started to prepare the events for the second half of this year, as well as next year. But as the world is only moving into a post-COVID area slowly, we have improved, or rather modified, our event manager. Since hybrid events are the best choice for 2021, customers can now set up hybrid events through the XING Event Manager. It includes 2 ticket categories, as well as 2 ticket prices and 2 attendee groups. After purchasing or registering, off-line attendees receive an entry ticket, while the online attendees only need their credentials to sign in. A new event page can be set up and advertised within a matter of minutes. So, how does the year-to-date performance translate into our financial outlook for this year. You may remember that we anticipated stable pro forma revenues of around EUR 276 million and a pro forma EBITDA of around EUR 90 million for 2021. Given what we have achieved in the first 6 months, we are now expecting minor growth in both KPIs. Ingo will elaborate on this in more detail. And with that, I thank you for your attention and hand over to Ingo for a deep dive into our financial results.

[Ingo Chu, CFO & Member of Executive Board]

Thank you, Petra. Hi, everybody. This is Ingo, and I'm going to talk to you about our Q2 numbers in more detail. Overall, we are on track. After stable revenues in Q1, we've returned to revenue growth in Q2. So let's have a look at the key message points. Number one, our portfolio of C-destinations, especially XING and kununu, continue to grow. That's important, because their talent access is the basis for our growth in our E-Recruiting business. Number two, our revenues have returned to growth and are up 5% year-over-year. Number three, EBITDA came in at EUR 27.4 million. Short term, that is extraordinarily high, driven by lower cost. Number four, operating cash flow came in at EUR 18.9 million. And number five, we updated our short-term full year EBITDA guidance from approximately EUR 90 million to approximately EUR 95 million. However, the increase in profitability is temporary and will not carry over into the next years. I'll give you more details on the following charts. Now if we look at the P&L, revenues came in at EUR 71 million; that's up 5% year-over-year. After a stable Q1, we've returned to growth year-over-year and quarter-over-quarter. The trend that we had seen already in March and April continues, and I'll give you some more color when we talk about revenues in more detail. Reported EBITDA amounts to EUR 27.4 million; that's up year-over-year. Reported EBITDA equals pro forma EBITDA, as this quarter, there were no extraordinary effects. EBITDA margin is at 39%. Now EBITDA and margin are exceptionally high. It is important to note that this is temporary only and should not be extrapolated into the future. Also, it will not carry over into the years 2022 and following. The reason is that currently, we are in a transition phase from the positive cost effects from the restructuring last year and reentering into investment mode. What we see is that it takes time to shift from a cautious COVID mode to investment mode, especially when it comes to hiring pipelines. Also, we have shifted some projects for tactical purposes into the second half of the year. And then, of course, we do have some savings due to the continued lockdown situation in Germany, i.e., if you look at travel or entertainment or event marketing activities. As I've said, these levels of profitability are temporary only. As we have stressed in the past, our long-term outlook post COVID is unchanged and very positive. Therefore, we will continue to invest in growth and in investment mode -- [ our ] margin will be in the low 30s. With this as background information, as I've said, we are raising this year's guidance for [ revenue ] development of like-for-like pro forma EBITDA from stable to single-digit growth. And more specifically, in absolute terms, we are now aiming for an EBITDA of approximately EUR 95 million. And again, please do not change your 2022 estimates because of that. Depreciation amounts to minus EUR 7.8 million; that's down year-over-year compared to last year's depreciation. There's 2 reasons for this year-over-year development. Number one, last year, depreciation included a onetime effect of a write-off for a product that we stopped. And number two, over time, the depreciation effect from purchase price allocation assets is decreasing. It's still currently approximately EUR 700,000 per quarter. Financial results came in at 0, so that's down year-over-year. And again, the reason for the year-over-year development is that last year, we had an approximately EUR 2 million positive effect from accounting-only earn-out adjustment and approximately EUR 1 million accounting-only book profit effect from our investments of our liquidity. This year, this quarter, Q2 financial result includes a positive nonoperating effect of EUR 300,000 from book profits on investments of our cash. If you take that out, financial result would be minus EUR 300 thousand, and that's mainly accounting-only, noncash cost for discounting lease payments according to IFRS.Reported net income amounts to EUR 13.6 million. It's up year-over-year. And if you take out all the XO effects, net income would be EUR 13.4 million. That's also up year-over-year. So, while revenue growth is coming back, the bottom line is up strongly short term because we are in a transition from last year's restructuring on the one hand, and investment mode on the other hand. On the next chart, you can see profitability by business unit. These are reported figures. And as a general rule, you will see effects from our restructuring last year and of our cost management. Let's start with the B2C segment. In Q2, B2C segment contributed EUR 11.4 million in segment EBITDA, which is up year-over-year; margin is up as well. Again, here you can see in particular the effect from last year's portfolio decisions. The B2B E-Recruiting segment contributed approximately EUR 28 million to profitability. That's up year-over-year. Margin is slightly down, given that we're investing especially in this field. The B2B Marketing Solutions and Events segment contributed EUR 2.8 million to profitability. That's up year-over-year, margin is up as well. On the next slide, you can see our revenue development by segment. B2C revenues came in at EUR 25.3 million, slightly down, 2% year-over-year. And in Q1, the reason for this development is the InterNations business. As you know, the revenues are basically paid memberships offering expatriates access to off-line events, which in a lockdown scenario, are directly impacted. Our XING paid membership business has developed in a stable manner in Q2. On a full-year basis, we continue to be cautious with revenue development in B2C. That is because InterNations depends on the end of the pandemic. And with XING, growing our active member base as a basis for monetization in E-Recruiting is more important than direct C-side monetization. Now let's have a look at our E-Recruiting revenue development. B2B E-Recruiting revenues came in at EUR 40.7 million; that's up 7% year-over-year. As planned, we have returned to growth in this unit, which is our most important growth driver. All of our solutions revenue streams are growing, especially employer branding, applicant tracking, and we do see also a rebound in our transactional Passive Recruiting business. At this point in time, on a full year basis, we stick to our single-digit revenue growth outlook for this segment in 2021. Finally, let's look at B2B Marketing Solutions and Events. Revenues amount to EUR 5.7 million; that's 34% up year-over-year. Now while in Q1, the situation was twofold, in that Marketing Solutions had started already to grow again, whereas the events business, as an off-line-based business, was still below previous year. Now in Q2, also the Events business has returned to year-over-year growth. On the next chart, you can see an overview of our cost structure. In Q2, personnel costs before capitalization came in at EUR 35 million. That's an equivalent of 49% of revenues. Costs are down year-over-year, which is basically due to the restructuring last year and cost management. If you look at marketing in Q2, overall marketing costs amount to EUR 5.9 million, 8% of revenues, slightly up year-over-year. All event-based marketing activities were still on hold in Q2 due to COVID, and at the same time, we are still acting with caution here in this cost line. Last cost line is other operating expenses. You all know, includes as usual external services, legal audit consulting, payment processing, server hosting, and other costs. In Q2, other operating expenses before capitalization came in at EUR 9.2 million, or 13% of revenues; that's down year-over-year, drivers of savings across the board. Now let's have a look at cash flows. Operating cash flow, excluding organizer cash, amounts to EUR 18.9 million. That's up year-over-year, driven by higher EBITDA and changes in net working capital. Cash-outs for operating investments amounted to minus EUR 12.1 million; that's up year-over-year. This increase includes CapEx for our new headquarters, and we do have a corresponding positive incentive payment in another cashflow line. Cash-outs for acquisition amounts to minus EUR 2.1 million. That is an earnout installment for prescreen, our applicant tracking system provider. Cash-outs for interest paid, foreign exchange, and rent amounts to plus EUR 2.3 million. This includes the cash-in of the incentive payment for our new headquarters from our a landlord of approximately EUR 4 million. The rest is mainly these cash-outs. With that, free cash flow before dividends and before organizer cash amounts to EUR 7 million. Out of that and out of our cash balance, we've paid out our regular dividend in the amount of EUR 14.6 million to our shareholders. And with that, free cash flow after dividends and before organize the cash amounts to minus EUR 7.6 million. Now, to sum it up, in Q2, we've returned to year-over-year and quarter-over-quarter revenue growth. EBITDA came in extraordinarily strong, given that we are in the transition phase between restructuring last year and return to investment mode this year. And on the back of this, we are updating our short-term full year EBITDA guidance from approximately EUR 90 million to EUR 95 million. However, as I've said, this increase in profitability is temporary, will not carry over into the next years. That's it for our numbers. And we're now happy to take your questions.

[Operator]

[Operator Instructions] And we will take our first question from Marius Fuhrberg with Warburg Research.

[Marius Fuhrberg, Analyst]

We have one. For -- or at other companies like [ what do you say ], we saw that on the back of the recovery of the labor market, they reported quite strong figures. And I mean, you also showed a slight growth already. But I wonder, what is your expectation, especially for B2B customer subscription, for the second the year, so which would then form the basis of your next year's growth?

[Ingo Chu, CFO & Member of Executive Board]

Well, our expectation is basically in line with our revenue expectation. And then, on a full year basis, we expect to grow our subscription customers in single-digit percentage.

[Operator]

[Operator Instructions] And we will now take our next question from Simon Bentlage from H&A.

[Simon Bentlage, Analyst]

I'm just wondering if you can give us a bit of color on how the relaunch of the XING app is going. I think you guys are sort of pretesting it. Maybe you can give us some flavor on how this is going. That would be interesting.

[Petra Von Strombeck, Chairman of Executive Board & CEO]

Hello, Simon, this is Petra. Of course, happy to do so. We are currently, as you said, heavily testing the new app in front of customers and large customer groups, collecting both quantitative and qualitative feedback. And we are doing, as always, iterations to get the best product out for the customers, so we are in line with our planning, and we count on relaunching the apps this year.

[Simon Bentlage, Analyst]

Okay. Can I ask a second question maybe?

[Petra Von Strombeck, Chairman of Executive Board & CEO]

Of course.

[Simon Bentlage, Analyst]

It's basically a follow-up on the B2B E-Recruiting customer growth that you're envisioning for the second half of the year. So, you -- I think you said you're expecting single-digit customer growth. I'm not quite sure how to understand this, like -- because last year, your guys' customer base was declining, basically. So, can we expect the customer growth to be at the same levels as in Q1 and Q2, so around about 30 million? Or should this accelerate towards the end of the year?

[Ingo Chu, CFO & Member of Executive Board]

Well…

[Petra Von Strombeck, Chairman of Executive Board & CEO]

Go ahead, Ingo.

[Ingo Chu, CFO & Member of Executive Board]

I would hope it would accelerate. The way I meant it with the single-digit percentage growth is, if you start from the end of the year 2020, the base that we had there, debt until the end of 2021 should increase by a single-digit percentage growth.

[Petra Von Strombeck, Chairman of Executive Board & CEO]

And please bear in mind that, as we have a subscription model, all customers that we collect in the second half of the year, their revenues will only partially contribute this year, and then will have an effect on next year also. If you compare to other market participants that have transactional businesses, obviously, they see a different phasing.

[Simon Bentlage, Analyst]

Yes, sure. Understood.

[Ingo Chu, CFO & Member of Executive Board]

Allow me to illustrate that point of Petra, because that's really important. And you know that pre-COVID, passive recruiting had the slowest growth of all of our E-Recruiting solutions. And it was the one, because it's transactional -- well, not because it's transactional, but -- and that's the transactional revenue stream that we have within E-Recruiting. All the other revenue streams are basically subscription-based. Now, in 2020 actually, passive recruiting revenues were down year-over-year. And now, if you look at actually -- if you look at our E-Recruiting revenues, and if you look at the revenues by solution, actually, passive recruiting is growing the most strongly within our overall E-Recruiting and is growing stronger than the 7% that we have overall in E-Recruit. Yes. So that illustrates that even within our context, transactional business has just rebounded. And that's why, if you compare 2021 with 2020, you have stronger growth rates than in the subscription part.

[Operator]

[Operator Instructions] We will now take our next question from [ Benjamin Sega ] from Deutsche Bank.

[Unknown Analyst]

I just have a question about B2B E-Recruiting growth. I was wondering if maybe you could provide a bit more color on what drove the 7% increase in Q2 compared to last year. And also, compared to last year…

[Ingo Chu, CFO & Member of Executive Board]

Yes. Actually, all solutions were growing. And solutions are -- you have active recruiting, you have employer branding, you have passive recruiting, you have applicant tracking. These are the main solutions within that. All of those have been growing. The strongest contribution in Q2 came from employer branding and applicant tracking. And then we had the rebound in passive recruiting.

[Unknown Analyst]

Okay. And a quick follow-up, if I may. Have you seen any new corporate customers taking on more products on some of their existing subscriptions?

[Petra Von Strombeck, Chairman of Executive Board & CEO]

[ Benjamin ], yes, of course we did, because with 30 customers alone, we couldn't see a 7% growth, and that's actually that the original customers that we already had also picked up additional products or additional licenses of existing products.

[Operator]

[Operator Instructions] It appears there are no further questions, so I would like to turn the conference back to our speakers for any additional or closing remarks.

[Petra Von Strombeck, Chairman of Executive Board & CEO]

Thank you very much, everybody, for attending and for your interest. See you for our next release of the quarterly results in the next call. Thank you. Bye.

[Ingo Chu, CFO & Member of Executive Board]

Bye-bye.

[Operator]

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.