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spk01: Earnings Conference Call. As a reminder, this call is being recorded and all participants are in a listen-only mode. We will open the call for questions and answers following the presentation. On the call today are Recruiter.com's Chairman and CEO Evan Sohn, CFO Judy Crandall, and President and COO Myles 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 statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Critter.com cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated, including risks described in the company's filings of the SEC. Any forward-looking statements made on this conference call speak only as of today's date, Monday, November 14, 2022. Recruiter.com does not intend to update any of these forward-looking statements to reflect events or circumstances that occur after today. A replay of today's conference call will be available through the Investor Relations section of Recruiter.com's website at investors.recruiter.com. With that, I'd like to turn the call over to Recruiter.com's Chairman and CEO, Evan Sohn, for opening comments. Please go ahead.
spk04: Thank you, Kieran, and welcome to everyone on the call today. I will start the call today with a brief introduction and then hand it off to Judy to review the financials. Miles will then go into some more detail on our core business operations and strategic plan. After that, we will open it up to questions from the audience. For those of you new to the company, a brief overview of our company. Recruiter.com provides on-demand recruiting solutions for employers looking to hire talent. We offer a new alternative to traditional headhunters and recruiting and staffing providers. Our on-demand recruiting solutions are more flexible than most traditional services, offering employers the ability to ramp up and down at will. We are focused on offering recruiters on an on-demand basis. talent acquisition professionals ready to help employers hire and augment their existing recruiting teams. Our recruiters have been trusted by companies like Zoom, Pfizer, ADP, Cerner, Dentsu, and many others. In the third quarter, we delivered 11% year-over-year revenue growth and showed a modest 2% sequential decline. We continue to execute against our 2022 objectives and plans, and further prioritize the management of our operating expenses to optimize for profitability. With our recently announced strategy being implemented, we are now focused on our segments with the strongest operating margins and client demand. We executed certain cost reductions aimed to accelerate profitability and are concentrating our efforts on our strongest growth drivers. In a more volatile business environment, we are focused on driving efficiencies and communicating the ROI of our solution to the market. We are focused on delivering great results for our clients in the most efficient way possible. While we improve our business, we also continue to explore strategic opportunities for the company, and we expect to have additional updates in the near future. I will now turn the call over to Judy, our CFO, to discuss our financial results. Judy?
spk00: Thanks, Evan. Revenue for the third quarter of 2022 totaled $6.97 million, an 11% increase over the third quarter of 2021. This growth was primarily driven by increased demand for our recruiters on demand service line. Growth profit for the third quarter of 2022 was $2.2 million, a 4.9% decrease compared to the comparable period of 2021. This reflects the company's shift away from permanent placement to focus resources on our on-demand business. Growth margin percentage fell to 31.45% versus 36.82% in the third quarter of 2021. Growth margin was again affected by the reduction in permanent placement and a pickup in lower margin on-demand talent revenue. Total operating expenses for the third quarter were $7.6 million, a 14% decrease compared to the operating expenses of 8.9 million in the third quarter of 2021, due primarily to the ongoing efficiencies gained from the integration of staff and assets from our 2021 acquisition. Net loss for the third quarter was 5.6 million, a 26% improvement compared to a net loss of 7.7 million in the third quarter of 2021. In Q2, we began to capitalize our product development expenses in accordance with GAAP policies, and we plan to continue this as a best practice going forward. During the third quarter, we again invested and capitalized our product development. Overall, we incurred an adjusted EBITDA loss of approximately $1.5 million. With that, I will turn it over to Myles to discuss our business operations. Myles?
spk05: Judy, thank you very much. This quarter, we saw some moderate decline in demand for our on-demand recruiting solutions, including software and on-demand, for an overall approximate 2% sequential revenue decline. We worked with many technology-oriented startups with our managed software service, and these companies slowed down their hiring activity. We also had one large enterprise customer stop all contracted vendor spend, though our project with them was very successful, and we expect to resume activity with this client early next year. Some of our revenue is derived from permanent placement, primarily made up of conversion fees for our on-demand recruiters. This business experienced a decline this quarter as fewer companies opted to retain full-time talent acquisition staff. If employers generally employ fewer staff recruiters, we do feel like our company is uniquely positioned to offer an alternative, which is our flexible on-demand recruiter offering. Healthcare, as an industry, is showing signs of being particularly robust in this market, and we intend to pursue additional clients in this sector. On our strategic plan this quarter, we refocused our priorities and developed a new strategic plan centered around how we manage towards profitable growth. First, we are focused on simplifying our business. For a growing startup, we have too many disparate revenue lines, perhaps as a result of acquiring multiple businesses in 2021 last year. We are aligning the business now around our largest and most profitable on-demand product line and concentrating our marketing efforts in this area. We aim to be the leader in providing on-demand recruiting and on-demand sourcing, and we feel like the market should support good client demand in these areas due to its flexible nature and solid ROI for our clients. Second, we recently announced a reduction in certain staff and operating expenses. Our on-demand business model has quite light operational demand. So we want to really take advantage of this and do more with fewer people and fewer processes in overall simpler approach. We recently announced about a 30% reduction in staff operational expenses, and we feel we can do this without affecting our revenue or our client results. Finally, we understand that we must prioritize near-term profitability over long-term, more speculative value creation in this market. We're adjusting our strategy to reduce or eliminate specific research and development expenses that we feel do not provide an opportunity for immediate revenue growth. We're currently evaluating additional strategic opportunities to create value. I'll now turn it over to Evan.
spk04: Thank you, Miles, and thank you, Judy. We are on a three-year mission. Last year, in 2021, our goal was to align our products to best fit the needs of our potential customers. We demonstrated our ability to meet our customers' needs. We scaled our revenue, acquired businesses, invested in product development, and created a repeatable sales process. We started in 2021 with the objective of reaching $20 million in revenue, uplisting to NASDAQ, and having a path towards profitability. In 2022, our objective was very clear, and we know this is extremely important to our investors. This clear goal is to manage our growth towards achieving monthly positive EBITDA. We are committed to obtaining positive monthly EBITDA in the near term and are aligning our cost structure with the gross profits results that we expect to achieve. Partnerships are an important part of our overall sales development strategy. We are excited to announce a new strategic partnership with Talent, Inc. Talent, Inc. is a leading career platform offering recurring monthly software for job seekers, resume writing services, career development coaching, and interview preparation. We signed a partnership agreement that creates a best-in-market affiliate relationship so that we earn a percentage of sales for job seeker referrals and allows for Recruiter.com to be a master affiliate to leverage Recruiter.com's network of recruiters to sign up additional partners to Talent, Inc. This is a great opportunity to further monetize our career communities on a partnership that really takes advantage of Recruiter.com's great reach to talent acquisition and recruiting professionals. Our career communities offer great potential for monetization, especially if the job market becomes a bit more weighted towards employers. This is 100% gross margin business that does not require staff intervention, so we're excited to expand this revenue line with a market-leading partnership. We are also actively exploring other strategic business opportunities with Talent, Inc. that we believe will drive significant value. I would like to close our presentation by reviewing our objectives and discussing our response to the overall market. We are committed to achieving positive monthly adjusted EBITDA in the very near term. On our last call, we discussed reaching this milestone in December. Since there is a variability in resourcing levels and severance arrangements, we do not want to forecast reaching this milestone until early Q1. However, we are working on a number of strategic opportunities which could result in a positive revision. We experienced about a 2% sequential reduction in revenue in Q3 and expect a more challenging quarter in Q4 for revenue as we optimize for profitability over growth to close out the year at approximately $25 million. This would represent about a 12% year-over-year growth through 100% organic means. We have a healthy pipeline of new business opportunities, but some macro conditions such as the capital cycle of tech investment have caused such previous hiring projects to be put on hold. In particular, technology startups have slowed some of their hiring initiatives. However, there are many bright spots in the economy, and in general, the overall job market remains incredibly strong. Certain pockets, such as healthcare and retail, are proving very resilient, and our revenue mix continues diversifying in these areas. As I mentioned during an interview with CNBC earlier this month, Employees are still demanding high salaries and the job market remains very dynamic with high quit rates and job openings. This type of environment continues offering solid opportunities for our platform and services. We anticipate a more normalized demand environment in Q2 2023 after an expected decline in Q4 and Q1. We are managing to this expected market condition by working swiftly to align our operating expenses with our expected gross profit and focusing our resourcing and efforts very clearly on our most successful lines of business. Thank you again for your time today and interest in Recruiter.com. Operator, let's now open it up to any questions.
spk02: All right. At this time, ladies and gentlemen, please press star 1 on your telephone keypad if you would like to join the question queue. Again, that is star one on your telephone keypad if you would like to ask a question. First up, seeing one in queue, we have Alan Cleet of Maxim Group. Your line is now open.
spk03: Hi, this is Derek Greenberg on for Alan. My first question is just in regards to the recent staff cuts, how that affects your operating expense run rate, what reductions we'll see there.
spk04: Thanks, Derek, and please give Alan our best, and I will answer this question. You know, as Miles mentioned earlier, our on-demand business model really has quite a light operational demand, and we really want to take advantage of this doing more with fewer people and processes. So that really allows us to reduce the actual client delivery because the recruiters that we have out on assignment are really all these on-demand freelance recruiters. We cut about 30% of our staff operational expenses. This included, as we were focusing more on the on-demand revenue and less on less strategic revenue, it allowed us really to have staff cuts that were really not impacting the day-to-day business that we were in. Does that answer your question, Derek?
spk03: Yeah, it definitely helps. Excellent. My next question is just in regards to, I know you had, I think, revenue targets of 12% was in the deck for fiscal year. I just wanted to confirm if that was accurate.
spk04: Yeah, so we're going to have a 12%, you know, on a conservative side, a 12% year-over-year increase from 2021. But very important is it's 100% organic. So while we made a number of acquisitions in 21, our growth in 22 has been 100% organic.
spk03: Okay, great.
spk04: And a little bit more about just a little bit more about what we're talking about on the business, we're really building a business around a much lower operating expense profile. That's really how I think you should look at it. We're focusing the business on our on demand revenue. And knowing what that revenue looks like, given our insight into our customers and the healthy pipeline that we have, we're really building a business around a much, much lower operating expense profile.
spk03: Great. Then my next question was just regarding to your current pipeline. I remember, I think on the last call, there was a figure that was thrown out of around 10% of the current pipeline being international and just related to some of the partnerships you had in the past. I was wondering if you had any like color to what that looks like now in terms of how those deals are progressing or perhaps outsourcing.
spk04: Yeah, it's an excellent question, Derek. You know, we signed a number of partnerships. with let's call them international employment organizations, Oyster, Deal, Velocity Global, et cetera. Those were really bringing us a number of interesting higher outside your local region. Not surprised given some of the market dynamics that has slowed up somewhat. We're still seeing a healthy pipeline of leads. I think our international revenue for Q3 was probably under 5% for international revenues. for Q3. So we certainly saw an initial pullback. But I also think that really would coincide with the increase of revenue from health care. Health care is typically delivered very locally. And so while we're seeing an increase in health care, the health care side of our on-demand revenue related to health care, that would actually be more focused on U.S. central companies.
spk03: Yeah. Thank you for the comment. That's all I have for now. Thanks, Derek.
spk02: All right. And not seeing any other questions in queue. Ladies and gentlemen, once again, that is star 1 on your telephone keypad if you would like to join the queue. Star 1 on your telephone keypad. At this time, I'm seeing no further questions in queue.
spk04: Excellent. So let me just close. And I know we focused a lot of attention previously on overall strategy and the position that we're in. We certainly learned a lot in the processes that we've been involved in over the last quarter about what people like about our company and what we don't like about our company, but really, really focused on the ability to address and reduce our overall cash burn. And we announced this reorganization of the business as we focus on our on-demand revenue, really aligning the business around our on-demand revenue and our marketplace no-touch revenue. We're rebuilding the business or building the business around a much lower operating expense profile. So while we expect lower revenue for Q4, we're still expecting to achieve positive EBITDA early Q1, which really we believe is critical objective over revenue growth, especially during these market conditions. So we're going to start seeing some of the benefits already in November and December. They'll be able to benefit from many of these cuts. We'll still have some residual one-time expenses through the remainder of the year. Although, as we mentioned before, there's some things going on that we might revise those numbers accordingly. But again, thank you so much for sharing your insights with us. Your comments and feedback are always welcome. You can visit us at investors.recruiter.com or email me at evan at recruiter.com. Thank you so much for your continued support and feedback. And with that, we'll close out the call unless there are any other questions.
spk02: At this time, there are no further questions in queue. Well, all right, ladies and gentlemen, it does appear that that will conclude your call. You may now disconnect your lines and thank you again for joining us today.
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