Recruiter.com Group, Inc. (NASDAQ:RCRT) Q4 2021 Earnings Conference Call March 31, 2022 4:30 PM ET
Company Participants
Evan Sohn – Chairman and Chief Executive Officer
Miles Jennings – President and Chief Operating Officer
Conference Call Participants
Alan Clay – Maxim
Lisa Thompson – Zacks
Operator
Good afternoon, and welcome to Recruiter.com’s Fourth Quarter and Year-End 2021 Earnings Conference Call. This is Stephanie Prince from PCG Advisory. 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; 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 Act of 1995.
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 Thursday, March 31, 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. Evan?
Evan Sohn
Thank you, Stephanie, and I’d like to welcome everyone on the call today. By every measure, Recruiter.com had a tremendous year in 2021. We grew revenue to over $22 million, a growth 160%. During the year, we uplifted to NASDAQ raised approximately $14 million in new capital, closed four key acquisitions built out our management team and a solid operational foundation, introduced several important new product segments and transformed our revenue mix.
We began the year looking more like a traditional staffing company on top of a web-based media company and ended the year as a technology-led recruiting solutions company. Coincidentally, today is my third anniversary with the company having joined as Chairman of the Board in 2019. And I couldn’t be prouder of our accomplishments. Thank you to our team and everybody who has helped us get to this point.
Before we get into more details, I’d like to briefly review our products and strategy for those new to Recruiter.com. Recruiter.com provides software and services to solve hiring challenges for employers. We deliver talent solutions to employers 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 deliver to them in their manner of preference.
This software works by scanning over 160 million profiles in the United States alone, matching their candidates 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 or gig basis paid by the hour. Think of this like Uber for talent acquisition. We have recruiters on various projects at our clients getting paid for their services with no traditional head hunter fees. These are full or part-time positions or by the independent recruiters in our network provide talent acquisition services to these employers to help them fill their open roles.
Our revenue grew throughout the year as our new products in traction and we ended the year on a high note with fourth quarter revenue of $8.4 million, a 34% growth from the previous quarter. For the year, revenue grew 160% to $22 million. This growth was primarily fueled by good overall market trends for recruiting and hiring solutions, multiple acquisitions that help drive marketplace and on demand services and a strong demand for our subscription based software. Miles will go into more detail in a few minutes.
Our shifting revenue mix underscores the transformation we’ve undergone. In 2020, Recruiter.com’s revenue was largely comprised of staffing services and advertising through our Recruiter.com marketplace. It was also the year we launched our recruiters on demand offering. As you could see on the slide, our product composition changed dramatically in 2021 with the change most pronounced in the fourth quarter.
On demand accounted for 62% of our revenue by the end of the year. Staffing was down to under 20% and our software subscription, which we didn’t have at all in 2020 already accounts for over 9% of our overall revenue. We believe this trend toward our technology products will continue, but that doesn’t mean that our other businesses didn’t grow.
All of our segments generated growth during the year as you could see on this slide. Some particularly our on-demand and marketplace revenue were accelerated by our acquisitions. The bar chart depicts our product segment revenue graphically illustrating the year-over-year growth for each of our product segments with the actual revenue numbers on the right. We continue to grow our customer base with a diverse mix of large and small companies across many industries. We now have 17 enterprise clients that spend over $50,000 with us monthly ranging down to over 430 self-service customers that spend on average $400 monthly. As our investment in our software and our platform continues, we expect to see more customers using multiple services, especially the larger clients. We also expect these customer trends to continue as we start investing in marketing, raising awareness of our easy and effective on demand services and software solutions.
I’d now like to turn the call over to our COO, Miles Jennings for a financial review.
Miles Jennings
Evan, thanks very much. Next slide. There you go. Recruiter.com had a strong fourth quarter. Revenue increased from $6.3 million in the third quarter to $8.4 million in the fourth, which was a 100% organic growth. Our higher margin, higher growth, software and marketplace subscriptions, and our Recruiter on Demand segments accounted for almost 75% of total revenue in our fourth quarter of 2021, compared to 66% of our total revenue in the third quarter.
Our strongest growth was in two product lines during the fourth quarter, including software subscriptions, which grew 64% from the previous quarter sequentially. Recruiter on Demand our largest revenue segment was strong too with revenue increasing over 50%. Our gross profit dollars increased by 14% over the third quarter and 262% compared to last year’s fourth quarter.
The gross margin percentage in Q4 was 31%, compared to 37% in the third quarter. This decrease in gross margin was primarily due to our first larger collections and bad debt issue. Specifically, we had to expense all of the costs related to one now former client, but we couldn’t recognize all of that revenue.
Without this issue, our margins remained roughly steady. This collectability issue will also affect our revenue in Q1, although to a lesser degree. With numerous acquisitions and high organic growth, we were bound to have a collections issue. We used it as an opportunity to review and tighten up our customer financial controls and checks and balances on extending our customer’s credit.
We’re confident that we’ve improved our credit evaluation process for the future. General and administrative expenses were up in the quarter, reflecting increases in compensation, reflecting our growth, an increase in stock-based compensation and the onetime bad debt expense of approximately $650,000 associated with the collection issue I just discussed.
Next slide. The EBITDA loss for 2021 was $5.3 million as adjusted for stock-based compensation, interest in finance expense, depreciation, amortization, and other non-cash items.
Next slide. For the fourth quarter, the EBITDA loss was $2.2 million. This loss includes the bad debt issue I just discussed totaling $650,000. Without the onetime bad debt expense, EBITDA on Q4 would’ve been close to the third quarter despite the increase G&A expenses previously mentioned. We’re focused on continuing on the path to profitability. Looking at the fourth quarter, revenue grew by 34% over the third quarter sequentially and gross profit dollars expanded by 14% to $2.6 million.
We expect to continue to shift from lower margin staffing revenue to higher margin software on demand and marketplace revenue combined with ongoing gross profit expansion that is trending to meet our operating expenses in the quarters ahead.
Next slide. So when we look back in this year as Evan mentioned, we really went through a dramatic transformation at our company. The capital we raised last summer in conjunction with our listing on NASDAQ, played a really essential role and helping us complete our third quarter acquisitions of the Novo Group and the Technology Division of Uncubed. The Novo Group acquisition helped grow our on-demand revenue in Q3. And we continued that with organic growth in Q4. The Uncubed asset purchase brought us job posting technology, which we successfully integrated into Recruiter.com and now we operate multiple career communities with that technology software. With a dramatically expanded customer base and some completely new product offerings, we really are a very different company than we were the previous year.
We’ve covered some of the highlights from the quarter and the year. But as a quick recap, total revenue grew by 160% year-over-year, which was fueled by acquisitions, organic growth and a tight labor market and good hiring demand. Highest margin segments, including software subscriptions grew at 64% sequentially. Our Marketplace Solutions were roughly flat for Q4 after a large growth from the Uncubed acquisition in Q3. This revenue includes primarily job posting product revenue. On-demand recruiting now makes up in total 62% of our business, software and Marketplace Solutions are now over 12% of our overall revenue mix.
Next slide. Some of our more recent updates from the past quarter. We released job market in hiring trends research in partnership with Revelio Labs, highlighting the growing demand for recruiters and talent acquisition professionals throughout the year. We announced a partnership with Deal, a platform that streamlines compliance and payments for international teams, allowing companies to hire contractors and employees globally.
We really picked up our PR and marketing exposure this past year, we participated in a number of investor conferences and appeared in many major media outlets. Evan, who was on CNBC earlier this month and throughout the year has been discussing changes in the job market in real time and driving a lot of really good conversation and interest to our company. This is going to continue to be important this year to get our story better known to the market, as we are a new publicly listed company as of 2021. Also a bit after the year end, we were awarded trademark registration for the wordmark Recruiter.com. We believe it’s an important protection for our brand, which we feel is an incredibly valuable asset for our company.
Next slide. We were also really proud last year to launch a number of new product innovations, such as our Amplify product for job posting and a revamped AI software. We continue investing in product development and brought on some key new team members in our software development and product management teams, including our CTO and a new Director of Product. We improved our AI software by adding to the database of candidates that we index and improved how we match candidates to open client jobs.
And finally, we launched our career communities based on the job posting software that we brought in through acquisition last year. We launched our first career community aimed at talent acquisition and recruiting. And these career communities will be an important part of our online engagement strategy and marketplace revenue going forward.
That ends my comments. I hope I’ve conveyed how excited we are about the opportunities for Recruiter.com this year and beyond. I’ll pass the call back to Evan for some comments on industry trends and the more macroenvironment.
Evan Sohn
Thank you, Miles. As many of you know, Recruiter.com creates its own research in addition to analyzing general market conditions. We then present this data to various outlets like on my monthly CNB segment – CNBC segment before the jobs report. We see here, our Recruiter Sentiment Index taken from a monthly survey of recruiters in our network. Since the beginning of the pandemic, you could see that sentiment continued to improve until Omicron hit the United States. After declining for a couple of months in the depth of winter, sentiment rebounded in March as the COVID pandemic continues to recede.
It is now back to 3.7 out of 5 new last month, we partnered with Revelio Labs to include job demand data. Interesting to note recruiters are now number two, on the list of the most in demand jobs. It was number three on our last call. There are a series of key macro industry trends that we believe will support our continued growth. These include the reopening of the economy. With an unemployment rate of 4% and over 11 million jobs open in January, there’s an immediate demand for recruiting solutions.
The great resignation is another significant trend that you’ve probably heard about on the news. It’s continuing. An estimated 4.3 million people quit their jobs in January of 2022 and current polls show that four out of five American workers are looking to make a job change. Then there is the job hopper economy where an estimated 60% of millennials say they’re willing to leave their job within the first six months. According to economists this trend is expected to have a lasting impact on work tenures going forward.
And last is the overall demand for recruiters. According to LinkedIn, there are over 300,000 open jobs for recruiters in the United States. The Wall Street journal actually called recruiters the hardest job to recruit for. Recruited.com is well positioned to address these trends.
These trends provide us with many opportunities that our key initiatives are focused on. We believe they’ll deliver impressive returns in this environment. First is our continued drive to maximize efficiencies in our operations. We remain focused on developing excellence in our supply chain of service delivery and are increasing the use of key metrics to gauge our performance. Second, as our business grows, so does our data. We are using our artificial intelligence technology to leverage our in-house data. More specifically, we’re improving our analytics to create more efficient processes and services.
Our shift towards higher margin, higher growth software subscription solutions is a newer highly scalable component of our business that leverages our platform to more fully align with market requirements, enabling us to scale up faster and bolder. Our backlog of demand increases the cross-sell opportunities.
In closing, I want to take this time to thank our team and our investors for an amazing year. We’re tackling some of the biggest societal issues like growing demand for specialized talent and have really big opportunities ahead of us. As we continue to evolve into a software and on-demand services company, our product offerings will address the biggest challenges that employers are facing right now. We believe that our products are well aligned with what the market needs and that we’re ahead of the curve of where recruiting and hiring are going for the future.
Thank you to everyone joining us today. And we’d like to open up the call for questions. Operator?
Question-and-Answer Session
Operator
Hi, everyone. Thanks for joining. This is the host. [Operator Instructions] Okay, it looks like we have one question. You can go ahead and talk now.
Alan Clay
Yes. Hi. This is Alan Clay for Maxim. Nice to hear you guys. And the momentum you have. Could you talk a little on the recruiter on-demand, what the momentum you’re seeing there? And what’s kind of and how you’re thinking about the outlook there?
Evan Sohn
Sure. Again, thank you, Alan and really appreciate your support certainly over these last few months. Recruiter on-demand is really an exciting business. Companies of all sizes really have a choice. They can either hire on their own, they could do it themselves, or they could use a HeadHunter to do it for them. And what we’ve really seen in this on-demand space are companies large and small want to bring an in-house recruiter without the long-term expense of an in-house recruiter. And we do this in an on-demand basis, very much like some of the freelance platforms like Upwork and Fiverr. And of course, I mentioned before, like the Uber for talent acquisition.
And what we’re seeing is companies – the larger companies, the more sophisticated companies are leveraging our on-demand platform to augment their in-house teams to really address influx or increases of demand perhaps on a sporadic basis. We expect this to continue and it’s also incredibly specialized. The recruiter that a pharmaceutical company requires is a different recruiter than a technology company requires.
And what we’re doing now, Alan is actually taking that downstream and helping companies – smaller companies with this – with the on-demand recruiting space as well. So we’re very optimistic about the long-term opportunities for our on-demand platform.
Operator, do you want to take the next question. Alan, did that answer your question?
Alan Clay
That’s great. Could I ask a couple more or…
Evan Sohn
Sure.
Alan Clay
Okay, great. For software subscription, I know that’s a new – that’s a bigger focus. Can you talk about kind of how you’ve changed the resources you’re putting behind that and how you’re thinking about the outlook there?
Evan Sohn
Sure. Look, the future of talent acquisition, at the end of the day here, recruiting is still about a human interaction. We’re not called no recruiter, we’re called Recruiter.com. So we really believe that talent acquisition is a human interaction. But what we want to see happen is that 80% of the time proverbially, of course, one should be spent in meaningful conversations with candidates and hiring managers and 20% of the time sourcing and engaging those candidates.
Our software combined with our services and our on-demand services are part of that sourcing and engaging candidate process. So companies, again large and small are subscribing to our software like a traditional SaaS platform, and we’re delivering for them a warm and engaged candidates. Our AI software has access to over 160 million U.S. profiles just in – that’s in the U.S. alone. So think about just every working adult in the U.S. that we have access to. And we engage our software on behalf of our clients, whether they’re pharmaceutical clients, technology clients, law firms and everything that’s in between. It really is an incredible piece of technology and I’m glad you – I’m glad you raised it because it’s been a very significant focus of our investment, certainly in 2022 as we expect to drive more and more revenue through our software throughout the year.
In fact, as we’re shifting to a software led company, our whole platform is going to be driven by our software itself. So we’re going to see the rest of our company utilize our own software throughout the very different lines of business that we have. And again, if you think about it now, we were have three – three major segments. We have self-service on our platform. We have the real – a small business offering for the smaller companies or the divisions inside of larger companies. And then we have a full on enterprise solution suite as well.
Thank you, Alan. So there’s another call from – operator, do you want to let that person in 203 for…
Operator
Okay. Alan, I’m just going to mute you here to go on the next person. Thank you. Now I’m going to allow the 4686 number to ask their question. [Operator Instructions]
Evan Sohn
There you go.
Lisa Thompson
Hi there. Okay. Just very, too high tech for me. Sorry. Hi guys. It’s Lisa Thompson at Zacks.
Evan Sohn
Hi Lisa.
Lisa Thompson
Could you a little bit talk about how the past year has progressed as far as demand and how you see it going forward? Is it a situation where more and more people are finding out about you and using you and so growth just keeps increasing? Or you at a point do you think where you’re actually going to see seasonality in your business?
Evan Sohn
It’s an excellent question and again thank you. Let’s first address the first question. More and more people are learning about us because we were a media company. So we run the largest network for recruiters and HR professionals. We have 3.5 million social media touch-points, 48,000 Twitter followers. But one of the areas that we’ve really invested in 2021 is really in our marketing department, really just an incredible team, doing great work, we publish articles every day, webinars, et cetera, and we’re driving more and more leads through to our sales team, which we also grew throughout 2021. And so we’re really benefiting from that exposure. We’ve spent a lot of time and money on SEO on ensuring that we’re driving lots of traffic to our website and our various microsites and are really able to really benefit from the URL that we have and all the traffic that we’re generating.
In terms of demand, not a day goes by where you don’t talk about or read about the war for talent or the talent shortage or attrition rates or hiring rates. And we’re part of that conversation. We are really at the epicenter of that conversation in terms of not just the articles, but the exposure that we have in various media channels and podcasts, et cetera. And we’re helping customers and clients really address and deal with those problems. Those problems aren’t going away. These are not – these are not episodic problems. These are going to be systemic problems. And so we really work with companies that have, that maybe historically we’re only churning 15% of their employees are now churning 30% of their employees. So it’s a very serious number and we’re really part of that overall process.
In terms of seasonality, you raise a great question. We acquired four companies in 2021 and we’re being very prudent in really recognizing that there could be some seasonality at some of the businesses that we acquired, and we’re taking that very seriously as good stewards of capital.
Operator
So thank you, Lisa. Really appreciate the question. Do you have a follow up?
Lisa Thompson
Okay. Yes. Given that we’re at March 31st and the first quarter’s over. What are your feelings of how this quarter turned out compared to this December quarter? Does everyone do this hiring at the end of the year or everybody wait for a new budget in January? Should we expect sequentially up revenues?
Evan Sohn
So at this time we’re not giving any guidance for 2022 and not for Q1 either. Our acquisitions are not even one-year old and we really want to see if there’s seasonality in their business areas. And so that’s probably – that’s probably what we’ll talk about in terms of guidance. The impact of the lost revenue that we did talk about in the call is a onetime impact and we’re quickly replacing that revenue with new clients and new software subscriptions. When I look at our – what our growth has been even with that revenue loss, I’m really very proud of our team’s accomplishments and the solid traction that we developed with our products. I’m looking forward to 2022.
Lisa Thompson
Okay. Do you have a feel at this point when you’re going to reach cash breakeven?
Evan Sohn
Excellent. We’re very focused on achieving profitability and managing our operating expenses. And so our monthly operating expenses have decreased over the last few months, as we realized the expense synergies from our 21 acquisitions – our 2021 acquisitions, not that we made 21, from the acquisitions that we made in 2021. Our cash burn is very, very manageable and we’re getting more predictable with each passing month.
Lisa Thompson
So that’s a no answer. Okay. Do you have any idea what revenue level you need to reach to get there or did I pretend…
Evan Sohn
I think we talked about that. Yes, we actually talked about that at the Q3 number. Our operating expenses are below $1.3 million on a monthly basis when you’re extracting out amortization and stock based compensation. We’ve been managing that really, really well. And if our gross margins are somewhere in the 40% range, you could sort of run the numbers and we’re hovering near there. So we’re both keeping our expenses controlled while investing in our software development and our marketing and our sales at the same time growing our – managing the growth of our revenue in line with ensuring that we could achieve profitability by managing our overall expenses.
Operator
Okay. I don’t see anyone else with their hand raised at this time. Please raise your hand if you do have a question. Okay. It looks like someone else has a question on the phone. Go ahead.
Alan Clay
Hi. It’s Alan again. For the bad debt that impacted 4Q, you said there’ll be something impact in 1Q also. Is it possible to give us a sense of what that might be?
Evan Sohn
I wish Judy was on the call. Our Chief Financial Officer, she was really close to those numbers and she couldn’t make it right now. Miles, do you want to just take this off?
Miles Jennings
Yes. I can speak to that a little bit.
Evan Sohn
Okay, great. Thank you.
Miles Jennings
Yes. With our on demand business, it does involve the cost of labor of our recruiters and talent position professionals that were putting out on a gig basis. And so we did incur some, I would say kind of non-material costs related to labor in January and that trailed off in before February. So non-material, but there’s still some trailing impact.
Alan Clay
So it would be reasonable to assume it’d be less of an impact probably in 1Q than it was in 4Q?
Miles Jennings
Yes. Very much so. Yes. We’re talking less than $250,000 in cost.
Evan Sohn
Thanks, Alan.
Operator
Okay. It looks like no one else at this time is raising their hand for a question.
Evan Sohn
Excellent. So just to conclude, just want to thank everyone for joining the call. We – I looked to how many attendees we had at this earnings call and it’s, I think twice as many as we had last call. So I think that’s a good trend, and I want to thank everyone for your continued support and if anyone needs additional information you could reach me at evanatrecruiter.com. You could also go check out our Investor website, which is investors.recruiter.com. I want to thank everyone for joining us today and everyone have a good evening.
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