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spk05: Hello everyone and welcome to Headhunter Group second quarter 2021 earnings call. On the call today we have Mikhail Zhukov, our chief executive officer, Gregory Moiseev, our chief financial officer, and Dmitry Sergiyenko, our chief strategy officer. A press release containing our second quarter 2021 results was issued earlier today and the copy may be obtained through our website at investor.hh.ru. Before we begin, we would like to remind you that today's discussion will contain forward-looking statements. Actual results may differ materially from the results predicted or implied by such statements, and forward-looking statements made today speak only to our expectations as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of the risk factors that could cause actual results to differ, please see the risk factors section in our annual report on Form 20F for the year ended December 31, 2020. During this call, we will refer to some non-IFRS financial measures. These non-IFRS financial measures are not prepared in accordance with IFRS. A reconciliation of the non-IFRS financial measures to the most directly comparable IFRS measures is provided in the earnings release we issued today and the slide presentation, each of which is available on our website at investor.hh.ru. Now I would like to turn the call over to Mikhail. Please go ahead.
spk08: Thanks, Armand. Hi, everyone. Thanks for joining us today. Halfway through 2021 and I'm increasingly optimistic about the strength of our business. Driven by fundamental market trends, we are currently seeing dramatic corporate activity in the recruitment market. This is evidenced by historical high number of vacancies on our platform and the record intake of new customers. As a result, our total paying customer base in the first half of 2021 exceeded 300,000. Along with customer base expansion, we have completed migration of our users to the new pricing model for subscriptions, allowing us to improve monetization and set the ground for its future enhancement. I'm also excited about our product development in the second quarter. For example, We released to millions of our users an in-platform functionality of direct and instant communication between candidates and employers. Chats and messages are becoming an increasingly important way people consume various digital products, so we are focusing here on integrating recruitment into broadly used interfaces. Another example, we launched cross-posting options for our clients to advertise their vacancies across their platform, thereby extending their candidate outreach. All these are crucial steps in order to help our clients to succeed in this challenging labor market situation. Now let me turn it to Dmitry to walk you through the key highlights of the second quarter. Thank you.
spk00: Thank you, Misha. And good afternoon. Thank you for joining us on this call. As Mikhail said, we are very happy to report that our business continued to gain strong momentum and significantly accelerated in the second quarter, delivering across all strategic priorities. Against low comparison base last year, our revenue in Q2 was up 155% year-on-year, driven by average consumption growth, accelerated intake of new small and medium businesses, monetization rollout, and full consolidation of newly assets acquired. Despite some diluting effect from skill as our product consolidation, we improved our profitability with adjusted EBITDA margin came above 57%. Our capex comprised just 2.3% of revenues, contributing to a strong cash flow generation over the quarter. Turning now to our results with customer segment, As a result of organic growth and acquisition of Zarplata, we have increased our customer base by circa 125,000 customers. And over the first half of 2021, we already have more paying clients than the entire pre-COVID-19. During the second quarter, almost all client categories demonstrated triple-digit revenue growth, with small and medium business segments being mostly driven by customer base expansion, both organic and inorganic, while key account segment also reported strong RPC growth, which could be explained by target monetization initiatives. Revenue in Moscow and St. Petersburg increased by 145% year-on-year, while revenue from other regions of Russia went up by 178% year-on-year, now regions reaching nearly a 36% share in total revenue. In terms of product dynamics, we're seeing a tremendous growth in job posting categories, soaring by circa 240% year-on-year and capitalizing on unprecedentedly high demand for labor and labor supply. In small and medium segments, the consumption growth explained circa 70% of total job posting growth, while in key account segments, consumption growth and pricing were nearly equal contributors. CV database access and bundle subscriptions demonstrated 133% and 95% growth year-on-year, respectively. This quarter we completed transition of our clients to a new subscription model and we see that circa 75% of CVDB revenue increase in key account segment is explained by purchase of additional contacts, actually exceeding our original expectations. So overall in terms of top line performance it was arguably the best quarter in our recent history. Having these strong historical numbers coupled with very robust and leading indicators such as long-term subscription bookings and package vacancy purchases, we decided to significantly upgrade our official guidance on full-year revenue growth basis with a range of 63-68% year-on-year. Of course, it assumes continuous recovery trend in the economy and no major restrictive measures in the second half. Now, here is Gregor to talk about our profitability and other financial metrics.
spk06: Thank you, Dima, and hello, everyone. Let me give you some detail on our expenses and margins first. As Dima just said, our adjusted EBITDA margin has increased to almost 58% in the second quarter of 2021 compared to 43.4% in the second quarter of 2020. This improvement was mostly due to the increase in our revenue. Consolidation of Zarplata and Scylla diluted our adjusted EBITDA margin by circa 3 percentage points. Therefore, the increase in margin in our organic business segments was even steeper than on the consolidated basis. Our operating costs and expenses increased by 93% in the second quarter of 2021. There were three key factors to this growth. First, we added expenses of our plot and skills, which explains about one-third of the growth. Second, there was a low base effect. as our expenses in the second quarter of 2020 were quite low on the back of COVID and related cost savings. And third, we increased our headcount, wages, and marketing expenses in accordance to our 2021 budget. Let me briefly discuss the key expense buckets. Our personnel expenses increased by 95% compared to the second quarter of 2020. The largest driver here was the addition of Zarplata and Scylla's personal expenses, which explains 1 third of the total growth in this bucket. The growth was also driven by the low cost base. Our cost savings program in the second quarter of 2020 saved us about 60 million rubles through reduction and bonuses. Also, our performance-based sales teams bonuses increased by circa 65 million rubles in the second quarter of 2021, on the back of overperformance in the internal sales team's targets, while in the second quarter of 2020, these performance-based bonuses were quite low. And finally, not including Zarquat and Scylla's consolidation, we increased our headcount by circa 13% or 120 people over the last 12 months, primarily in customer support, development, and sales teams, And we also increased wages by circa 10% in the second half of 2020 and by circa 7% in the second quarter of 2021. As a percentage of revenue, personnel expenses, excluding share-based compensations and other items, have decreased from 31.4% in the second quarter of 2020 to 23.1% in the second quarter of 2021, or by 8 percentage points, mostly due to the increase in revenue. Moving on to our marketing expenses, they increased by 53% year-on-year. The growth was driven mostly by expansion of our marketing expense across various channels in accordance with our annual budget, while approximately one-third of the growth was due to зарплата consolidation. And there was also a moderate low-base effect through our cost savings last year. As a percentage of revenue, marketing has also decreased quite sizably from 15.3% in the second quarter last year to 9.2% in the second quarter of 2021, all by circa 6 percentage points, again mostly due to the increase in our revenue. Our other general and administrative expenses increased by 141.6% compared to the second quarter of 2020, Key driver here, again, was the addition of Zarplata and Scylla, which contributed approximately one-third of the growth in the bucket. And the other factors were SPO-related expenses of 76 million rubles in the second quarter of 2021, the low base effect of the COVID-related cost savings program in the second quarter last year, and the increase in cost of sales on the back of the increase in revenues from other value-added services this year. As a percentage of revenue, other general and administrative expenses adjusted for various non-operational items were 9.9% in the second quarter, flat compared to 10% in the second quarter of 2020. Margins achieved in the second quarter of 2021 are explained by a significant revenue increase, while cost base being at somewhat conservative level, taking into account yet unstable macroenvironment. So we don't think these high margins are sustainable in the short term and expect them to trend down towards 50% plus later in the year. Moving on to other key indicators. Our CAPEX in the second quarter of 2021 was 88 million rubles compared to 41 million in the second quarter of 2020. And this increase was mainly due to our investment in silver infrastructure on the back of the increase in user traffic. As Dima said, CAPEX was about 2% of revenue in the second quarter. Our net working capital as of June 30th, 2021 was negative 4.8 billion compared to negative 3.8 billion as of December 31st, 2020. The change was primarily due to customer advances we received over the last six months. Income tax expense in the second quarter of 2021 was 414 million rubles compared to 75 million in the second quarter of 2020. This increase was driven by the increase in revenue and consecutive increase in the taxable profit. Our effective tax rate in the second quarter was 24.5%, relatively flat compared to 23.9% in the second quarter of 2020. Now turning to cash generation metrics, in the second quarter of 2021, we generated 1.7 billion rubles from operating activities compared to 1.5 million in the second quarter of 2020. The growth was primarily driven by the increase in sales. We used 803 million rubles in investing activities compared to 28 million used in the second quarter last year. The increase was mainly due to the consideration paid for acquisition of additional 40% ownership interest in Skillas. We used 205 million rubles in financing activities compared to 572 million used in the second quarter of 2020. This decrease was mostly due to timing of bank loan repayments last year due to COVID-related period of non-working days. Our net debt decreased from 5 billion rubles as of December 31, 2020 to 2.6 billion as of June 30, 2021, primarily due to the increase in cash balances from operating activities. On the back of the decrease in net debt and the increase in adjusted EBITDA, Leverage decreased to 0.4 times adjusted EBITDA as of June 30th, 2021, compared to 1.2 times adjusted EBITDA as of December 31st, 2020. Post-period end in July 2021, we settled earlier announced dividend for the year 2020 of circa 2 billion rubles. Therefore, our net debt and net debt to adjusted EBITDA ratio increased in July compared to the quarter end measures. And finally, in July 2021, we established a new restricted stock units plan to provide a more competitive long-term motivation model to our key talent. Prior to this, our management incentive programs included the 2016 unit option plan and the 2018 unit option plan. Our 2016 option plan focused mostly on our top management level. It is now fully granted and the outstanding awards waste through May 2023. Part of the awards issued under the Legacy 2018 option plan will be replaced with awards under our new RSU plan. The maximum number of shares provided under the new RSU plan is 6% of the total shares issued and outstanding from time to time. The awards are expected to be granted in transfers over the period of four years until August 2025. Each individual grant will be subject to approval by our board of directors upon recommendation of the management and the compensation committee based on certain selection criteria. Wasting period for each transfer will be four years commencing on the grant date. The new RSU plan will be reasonably wide in its coverage and will reward, among others, our key personnel in development, product sales, and marketing teams. We believe that with the new RSU plan, we will be able to better attract, motivate, and retain our key talent. This concludes our presentation of the results of the second quarter of 2021, and we are now opening the floor to your questions. Thank you.
spk02: Thank you. As a reminder, to ask questions, you will need to press star and one on your telephone. To withdraw your question, press the hash key. Please stand by while we compile the Q&A roster. And the first question comes from the line of Jarvis Dettrichter from Goldman Sachs. Please ask your question. Your line is now open.
spk03: Yes, thank you very much for the presentation. A couple of questions. So firstly, can you share your thoughts on the medium-term monetization plans? Are you looking to do any new steps with regards to the monetization this year or it's more for the next year? And how would you qualitatively assess how much of the upside from the April price increases as well as the last August price increases were not yet reflected in the second quarter results and will be reflected in the coming quarters? And my second question is more technical. It looks like you increased the stake in skillers further. Are you considering the full 100% ownership ultimately? Thank you.
spk00: Hi, as always, Zeno here. I'll try to answer your questions. The first one on the monetization, we are very pleased with the results of the transition and implementation of our new subscription monetization model. So this year, we've actually moved all clients to new monetization models. And yeah, it actually kind of was executed quite smoothly without any churn, spikes, etc., At the same time, as you can already see in the results, and you will be observing this in the next quarters, the result and the impact on revenue was quite significant. Looking forward, of course, we believe that there is a really huge opportunity and a lot of various areas we can actually exploit. our monetization ideas, so every year we plan to actually kind of move to our long-term target. This year, as we migrate clients to new monetization model, we'll try to get the actual realized price for the contact a bit closer to the target level. To remind you, we sell the contact for six rubles per contact, per unit, Now the realized prices are 40 rubles, so we'll try to get closer to 60 and then we'll kind of inflate further that number. At the moment, technologically, we are very focused on getting the infrastructure and the tariff structure in place by end of this year to kind of match close their actual willingness to pay our clients. So we'll be focusing on regional differentiation, First of all, differentiate Moscow price from other regions because at the moment there's a lot of uniformity in that. We also pay attention to differentiation by role and by profession. Also see that at this point of time, tariffs are not flexible enough and we see a significant upside from that. In terms of April impact, I would say the growth was quite moderate because major initiatives on monetization were actually implemented before COVID, and then we also announced the new subscription model, so we didn't actually plan to make April as a major pricing event. Therefore, I would say it's quite moderate this year. Already in the second quarter, of course, you'll be seeing the impact throughout the year because the tariff changes are not affected in any particular quarter, even the spread throughout the year. But I wouldn't call April as somewhat one of the end. In terms of Scylla, it's a separate transaction from the acquisition of the original control. And to extend, it was a kind of act of good gesture towards the founder who had been writing this business very successfully over the last five years. So again, certain liquidity. At the same time, he remained a significant stake in the company, 25%, and he is fully motivated in the longer-term success of this business. So we're also very much interested in him being fully invested and involved. Therefore, consolidation of 100% is possible. Maybe it's the ultimate endgame, but we're not seeing it in the shorter term, definitely.
spk03: Okay, thank you very much.
spk02: Thank you. And the next question comes from the line of Ivan Kim from Sextellos. Please ask your question. Your line is now open.
spk04: Yes, good afternoon. Two questions for me, please. Firstly, just on the longer-term growth, the current high demand sets a fairly high base for next year. So I was just wondering how confident are you the company will be able to maintain this 25-30% growth in 2022. My second question is on profitability and the marketing spend. The marketing spend has been fairly modest vis-a-vis revenue, but not in absolute terms, but vis-a-vis revenue definitely this quarter. What would you expect for the second half? On your marketing spend, is it driven by by competition so basically is it more you responding to the competitors or it's kind of normal let's say course of business thank you very much thanks I will answer the first one on the growth I think it's a little bit premature now I think discussing growth for next year we still have two quarters
spk00: But at the same time, part of today's growth is definitely unsustainable, right? And so the last year comps are quite favorable. And we also have some acquisitions affecting revenue line. But at the same time, there are certain factors that we believe are definitely sustainable. and they will be having significant impact next year. For example, monetization and new subscription model, we expect to have at least two times bigger impact on revenue next year than this year, just because of the full-year effect. That's the first thing. There will be new monetization initiatives, there will be significant customer growth, we expect. And therefore, the growth rate that you mentioned, it's not our guidance at the moment, we're not planning to do it now, but it looks quite sensible. We believe that we can sustain this level of growth next year, as we see the situation at the moment unfolding. And I'll hand it to Grisha to comment on Mark's event.
spk06: Yeah, thanks, Liam. Hi, Juan. This is Gregory. So on profitability, as I said, we kind of expected to trend down a little in the second half of the year. Of course, first unknown is what's the revenue trajectory would be, whether the Q2 high demand and high number of job postings will continue into Q3 or into Q4 as well. Secondly, on the cost side, we kind of expect to increase investment because we were on a somewhat conservative side in the first half of the year, just not being sure of what the full-year revenue performance would be. We're now heading into autumn, which will probably be quite heavy in terms of marketing spend, for instance, as this is typically a busy season for recruitment. Also, Zarplata and Skelos, which we consolidate now fully in our P&L, they do have the dilutive impact. We estimate it to be about 3% on the full year results as well, just as it was in the Q2. So, basically, given all these factors, we think in the Kind of conservative revenue scenario, we're looking at about 50% adjusted down margin for the full year, maybe more if revenue will be performing better than conservative. Of course, provided kind of no severe COVID-related lockdowns or et cetera occurring in the second half of the year. And then I think on marketing, as I said, we're looking forward to increase in the second half. Percentage-wise, you saw that it was about 9% in Q2. I think it will be kind of closer to the last year, about 13%, maybe 12% of revenue as we saw in 2020. I think we will see something like that in 2021 as well, maybe a little bit less. As for the house-driven, I wouldn't say that it's kind of entirely competition-wise. We can still see the kind of positive effect from marketing investment in both just brand awareness and performance-based Um, so, um, we are kind of targeting, uh, marketing level as percentage of revenue, for instance, as well. Um, but, um, in some instances, um, yeah, we are, we are responding to, uh, competition as well. Uh, I think in the second half of the year, it will be pretty much, uh, increasing every, of course, kind of every, uh, uh, marketing channel, uh, including performance-based and online brand awareness and offline as well.
spk04: Great. Thank you very much for the detailed answers.
spk02: Thank you. And the next question comes from the line of Dmitry Vaslov from VOTE. Please ask your question. Your line is now open.
spk07: Hi. Thank you very much for the opportunity to ask questions and congrats on impressive results. So my first question would be on your revenue growth. If you could break down your second quarter revenue growth, like how much of this growth came from the base effect, overall positive labor market dynamics, improved business performance, and consolidation of acquired assets. That would be my first question. My second question would be maybe if you could provide some comments and some color on the July and early August trends. in terms of how you see the overall market is performing, whether this positive labor market trend is changing or even accelerating. Thank you.
spk00: Thanks, Dmitry. It's here. Okay, so, of course, in second quarter, second quarter revenue worth decomposing in the sustainable factors in the less sustainable. Of course, per hour estimated around 80% percentage, well, 80 percentage points. are actually attributed to just the low base effect from last year and served with 20 percentage points attributable to acquisitions we made Plata and Scyllas so effectively you can kind of take out this 100 percentage point and that remains 55-60% that could be kind of called organic or driven by underlying fundamentals It's still quite phenomenal growth for the business on scale like ours. And at that 60%, you can also kind of decompose in the three major factors that you actually already mentioned. 25% of those 60%, like one-fourth, kind of relates to monetization of existing business. And... As I said already, we see ample opportunities in the coming years here. So the shift, the new monetization scheme was kind of an exceptional event, but it opens up a lot of opportunities for further monetization. So we have a lot of monetization ideas on dynamic, individual pricing, et cetera. I already answered this. So this part is quite robust, and we don't expect any deceleration or kind of diminishing impact from this. Another factor is the average consumption per client. So at the moment, we see that small and medium businesses consume a circle of 50% more than they did historically, and key accounts consume almost 100% more. So they double the consumption on average. We believe this area where we actually may have some kind of temporary effect that may actually fade away, not entirely, but to the extent as we see the Russian labor market can stabilize, life gets normal, people can start moving again, and people's mobility generally improves. So this is the part that actually probably encompasses the highest kind of unsustainable fragment. And the major 50% that explains half of that growth, 60%, is attributable to kind of intake of new customers. And this is what we call digitalization and acceleration in digitalization. And more companies get involved in online transactions on the back of this COVID circumstances. So we believe this is actually what drives up the fundamental trajectory and that accelerates our long-term growth. Last year, we also significantly improved our client onboarding experience that gave a pretty impressive immediate effect that could be hard to replicate or not always to come up with such great interface improvements. That gave us around 7% of total growth, but the remaining is what actually belongs to this accelerated digitalization. In terms of trends, they remain very strong. I think that that's one of the reasons why we upgraded guidance in July, which is quarter to date. We see that the fundamental factors did not accelerate, and we see still even kind of accelerating impact from monetization, stable consumption, and the market is still pretty tough. If you look broadly at the market, I think all our competitors face very similar challenges with a kind of shortage of supply of candidates. And in this environment, we believe that we held up pretty well and we acquired 2 million new CDs. So we sustained candidate delivery levels. So that most likely resulted in market share gain in terms of candidate delivery. So the market remains to be tough. We don't expect this situation, as we said, especially the last call, because it's driven by demographic. We don't expect it to significantly change. So the market will be quite stretched in the next years, maybe five years or more. But, yeah, some factors may actually disappear over time. Thank you.
spk07: Thank you very much for all the details on this.
spk02: Thank you. And before we take our next answer and question, may I just remind you, if you wish to ask a question, please press down one on your telephone keypad. And the next question comes from Anna Kubatov from Alfbank. Please ask your question. Your line is now open.
spk01: Yes, thank you very much, and also congratulations with great numbers. I have two questions. First of all, could you elaborate a bit on your future approach to pricing? So you mentioned in your speech that you are considering some price differentiation by region, by profession. So maybe you could tell a bit more about What professions are in most demand now? Where do you see the most potential to the average check? What categories or industries are more or less performing or where budgets have not such opportunities? Points of growth. Yes, and the second question will be on your RSU plan and the buyback. So you tell us that the RSU plan is equal to 6% of your number of shares and that you will be funded by both buyback, new share issue, and allotment. So could you provide more information how much of an RSU plan will be backed by buyback and a bit more if it's possible on the buyback techniques, buyback program techniques. So do I understand correctly that you will be like from time to time buying your shares from the market during the next 12 months period? Thank you.
spk00: Thanks, Anna. It's Dmitry again. On pricing, well, actually, there are various angles how you can differentiate. And we believe that we should end up having fully dynamic pricing that is not bound by a certain logic, but it just responds to the actual labor supply balance in the market. Because some professions, they may actually look quite kind of knowledge-intensive and attractive, but there's oversupply of candidates in a sort of vertical, right? And so the price and our pricing should reflect the actual situation, not only the kind of potential salary. What we see as the kind of biggest opportunity, I think, for us is, of course, to differentiate the kind of low-skilled labor and blue collar. And this is the area where we even actually may foresee certain price reduction, just to win this market because it's really huge and growing fast. And for the other hand, we have kind of high-end of the market, white-collar professionals, where at the moment our pricing thing is not anyhow tied to actual value and the importance of such professions for businesses. So I think that angle would be probably important. Also, IT professionals, we see it in the highest and growing demand. that's another error, because at the moment, whether it's a courier or engineer, for most products, you're just paying the same price, and I think that's not really fair. In terms of the impact, at the moment, we are... entirely re-engineering our role catalogue in the company and that actually interranged quite deeply into our service so by end of this year we should have the fully brand new professional catalogue which will be a kind of ground for this differentiation and starting from Q1 next year we will start And launch experiments will be kind of finding this differentiation points. And as we see the opportunity, we can get it implemented in the tariffs. That's the first question. And second, I think we will just give it to Gregory.
spk06: Yeah, thanks, Dimak. Yeah, hi, Anna. So I just wanted to reiterate again that this new RSU plan size of 6% is actually quite deferred in time, right? We are going to grant these awards not kind of immediately, but over the years. period of when this program remains valid. It's four years, so it's expiring in August 2025. And we expect these awards to be granted over this period. Specifically, I think in this year, we would grant about 10 or 15% of this total program and be remaining in the next three years. As for the buyback, yes, the primary purpose of the program is to fund these share-based incentives without diluting existing shareholders. At this point, I'm kind of not ready to give you any indication or specific on when and what volumes we are going to buy back. As you saw, the program is kind of a framework. It assumes the maximum 10% of equity to be bought back. That's the kind of statutory limitation valid for 12 months. And the buyback price should not exceed the average, the average by more than 5%. So we will kind of occasionally do the purchases from the market, as you said, and we will inform accordingly as soon as we decide on any specific kind of buyback tranche. Just as an indication, right, of the buyback size, maybe it's useful We estimate that next year we will have to issue about 400,000 shares under our 2016 option plan and the new RSU plan. And all the shares will probably be purchased from the market, maybe in some part this year and next year.
spk01: Thank you very much. Very clear. Thanks.
spk02: Thank you. There are no further questions. Please continue.
spk05: Thanks a lot for joining the call. Bye-bye.
spk00: Thank you. Bye-bye. Thanks. Bye.
spk02: Thank you. This concludes our conference for today. Thank you for participating. You may all now disconnect.
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