Monster Worldwide (NASDAQ:MNST)
Q3 2008 Earnings Call
October 30, 2008 5:00 pm ET
Sal Iannuzzi – Chairman, CEO
Timothy Yates – Executive Vice President, CFO
Mark Stoever – Corporate Development, Strategic Alliances
Darko Dejanovic – Global CIO, Head of Product
Mark Mahaney – Citigroup
Monica DiCenso – J.P. Morgan
Christa Quarles – Thomas Weisel Partners
John Janedis – Wachovia
Peter Appert – Goldman Sachs
I would like to welcome everyone to the Monster Worldwide third quarter 2008 earnings results conference call. (Operator Instructions) I will now turn the call over to Mr. Bob Jones, Vice President of Investor Relations.
Thank you for joining us on Monster Worldwide's third quarter 2008 conference call. Our format calls for us to have formal remarks from Sal Ianuzzi, Chairman and Chief Executive Officer and Tim Yates, Executive Vice President and Chief Financial Officer. Joining us for the question and answer part of the call are the following members of our executive management team; Darko Dejanovic, Global CIO and Head of Product, Arnold Donald, Customer Service, Mark Stoever, Corporate Development and Strategic Alliances and James Langrock, Senior Vice President of Finance and Chief Accounting Officer.
Before we begin, the statements made during this conference call constitute forward-looking statements under applicable securities laws. Such forward-looking statement involve certain risks and uncertainties including statements made regarding the company's strategic direction, prospect and future results and do not include the effect of the events or outcome of the ongoing investigations or litigations related to the company's historical stock option grant practices or costs associated with the restructuring and the security breach.
Certain factor including factors outside of our control may cause actual results to differ materially from those contained in the forward-looking statements including economic and other conditions in the markets in which we operate, risks associated with acquisition and disposition, competition, seasonality and the other risks discussed in our Form 10-K and our filings made with the Securities and Exchange Commission.
With that I'd like to turn the call over to Sal for his comments.
Good afternoon everyone and welcome to our third quarter earnings conference call. On today's call I will briefly discuss the current macro conditions as well as the progress we've made this past quarter and our areas of focus in the coming months. Tim Yates, our CFO will then discuss the third quarter financial results in detail.
One note before we get started. As many of you know, we'll be holding an Investor and Analyst meeting on November 13 at the Kennedy Presidential Library Museum in Boston. You can follow up with Bob Jones to get the details.
I don't have to tell this audience what a terrible quarter this has been for the financial markets around the world. Suffice it to say there is no doubt that the whole economy has slowed down significantly and it's impacting all businesses. Monster is no exception. Nobody is certain how long and deep the slowdown will be and that holds true for us as well.
What also holds true is we are doing everything we can both tactically and strategically to maintain a reasonable return for our shareholders without sacrificing the future growth of the company. Put another way, we will not make fundamental shifts in our strategy based on one or two quarters of results. We will consider adjusting our strategy if it appears that the slow down will be more prolonged.
However, keep in mind that markets like these also present unprecedented opportunities and we will aggressively seek them out. As many of you are aware, we have embarked on aggressively structuring a reorganization of the company to make it more cost effective and responsive to employer and seeker needs.
Simply stated, the company was in need of fundamental improvement and we've made great progress to that end. You've heard me elaborate on this in the past so I won't go into great detail except to time line the most important changes.
We've realigned the company by global functions which has allowed us to save well over $100 million in operating expenses. We've embarked on the biggest product investment and rebranding initiative in the company's history, one that will be fully completed by the first half of 2009. We've expanded our sales coverage in the U.S. with the addition of 130 field sales personnel to date.
We've taken significant steps to enhance customer service by investing in new facilities in Florence, South Carolina, and Bruno, Czech Republic. We added depth and experience to the Board including the most recent appointment of Roberto Tunioli, and we settled a class action shareholder lawsuit regarding options back dating.
Nobody can predict the longevity and severity of the current economic slow down. We are focused on continuing to reduce costs, maximizing every dollar spent without jeopardizing the investment that we're making for future growth. We've demonstrated in the past that we know how to make our dollars work harder and smarter and we will continue to do so. In fact, our current spend level is comparable to that of 18 months ago and that's with the initiative that I mentioned earlier.
To further elaborate on this point, the first nine months of the year, the company has generated $241 million of cash flow from operations. This has allowed the company to enjoy a cash balance as of September 30 of $486 million net of debt. During this period, we've also made $331 million of investments including Trovix Affinity Labs, our stock repurchase and capital expenditures which improve the safety, security and efficiency of our technical infrastructure as well as improve and expand our products and services for both employers and seekers.
As you can see, we've made strategic investments to strengthen the company while preserving our strong cash position. As a result, in the third quarter the company delivered non-GAAP earnings per share of $0.40 and an operating margin of 21% and all the while, this occurred during a slow down of the economy with deep investments being made across the company.
What this means is that Monster continues to have a strong liquid balance sheet to support our growth plans, and our healthy cash flow has provided the capital to pursue these and future strategic initiatives.
At the end of the day, success for Monster is all about finding new employers and seekers and growing market share. With that goal in mind, we've put the majority of our resources doing just that, by improving our products and services, investing in new technology, identifying new markets, and strengthening our sales force.
I've said it before, but we'll say it again. We will leave no stone unturned when it comes to improving our offering and growing and winning market share from our competitors. This is absolutely our primary focus. We believe this growth will come in a myriad of ways including moving into high growth, vertical markets, developing new distribution channels, creating new product that satisfies customer needs and driving customer demand.
We're aggressively seeking out growth, opportunity in all these areas, and have some successes to report back on. This quarter we acquired the remaining 55% of ChinaHR giving us an unrivalled platform in the world's fastest growing economy. Being a global leader requires having a leading position in China and the favorable purchase price goes a long way in funding future investments in China over the next few years. We believe that our position in China gives us a significant advantage over the competition.
We're in the process of completely overhauling customer and seeker experience on Monster.com. Our new employer and seeker sites will represent the largest product and service re-launch in the company's history. We've already started the largest re-launch of employer products which will culminate in over 90% of the platform being changed.
These changes will provide employers with more tools and options to find the most qualified employee, and we are already incorporating key elements of the [torvecs] small search technology into the new platform which will give employers an unparallel level of search and match between employee job requirements and candidate skills. The search will change from a simple key word search to a contextual search that takes into consideration skill, years of experience, education and other relative career attributes.
Starting in the U.S. in January and continuing in Europe through Q1, we will re-launch an entirely new job seeker site experience including new functionality that will be unique and unrivalled in the industry. Almost 100% of Monster's seeker platform is being rebuilt. You will hear much more about the new seeker products in the weeks to come.
We also announce a unique partnership with Comcast, the nation's largest cable provider to be exclusive job partner for their signature on demand service. Beginning on November 1, Comcast's 14 million digital cable customers will have access to customer's employment resources through the touch of a remote control. We believe there is significant potential to expand our market share through this deal and we continue to look for these types of exclusive partnerships that allow us to reach job seekers in new and creative ways.
Our renewed stock flows has begun to get traction in the market. We have and continue to introduce new methodologies in our income model both to our product post and other enhanced offerings. This will make it even easier for mid and small sized companies which are responsible for 70% of new job creation to do the business with us.
We are aggressively pursuing all channels that can bring us revenue in the short term including further leveraging of our agency and newspaper relationships. As you can see, we've not taken a bunker mentality when it comes to this slowing economy. Quite the opposite.
We're making choices that will allow us to grow market share and aggressively pursue short term revenue even in this tough environment while positioning the company for robust, long term growth when the economy eventually picks up again. We believe this is the correct approach and one that will yield both short term and long term benefits.
The senior management team of the company fully believes in our strategy and the current share price does not fairly reflect the value of the company. To demonstrate our belief, we are announcing today three programs that will increase senior management commitment and alignment to our shareholders.
First, I will be purchasing $1 million of Monster shares and Tim Yates; our CFO will be purchasing $500,000 of Monster shares in the coming days. Second, the executive management team will take a 2008 short term incentive compensation in shares instead of cash. And third, the compensation committee of the Board of Directors has approved a special incentive equity program for senior executives which is 100% performance based.
Lastly, today we announced that Monster Worldwide has filed an application to list its common stock on the New York Stock Exchange. We expect to begin trading on this exchange on November 10 under the symbol MWW. We believe the New York Stock Exchange is a prestigious platform for Monster, a platform that is committed to integrity in governance, innovation and global growth.
These are exciting times for Monster and our move to the New York Stock Exchange is consistent with the goals and strategies and values of the new Monster. I will now turn it over to Tim who will provide a more detailed look at our operating and financial performance in the third quarter.
First I will review our income statement, highlighting our non-GAAP results while providing the GAAP reconciliations. I'll then review the results within our operating segments, summarize the recently completed acquisition of ChinaHR and finish with a discussion of our balance sheet, cash flow and liquidity.
Consolidated revenue was $332 million in the third quarter, up slightly when compared with the prior year and was positively impacted by approximately $6 million of currency benefit. In last year's third quarter, currency contributed approximately $8 million.
On a non-GAAP basis operating expenses were $262 million in the third quarter, essentially flat with the prior year. On a sequential basis, operating expenses were down 5% or 3.5% before currency. During the quarter we took a number of actions.
First we continued to tighten our focus on all expenses, especially in the areas of consulting, T&E and temporary staff. Second, we allocated a greater percentage of our marketing dollars on-line in the third quarter, realizing increased traffic levels on a more efficient and lower spend. And lastly, we incurred lower commission and incentive compensation costs.
At the same time, we continued to invest and add resources in critical revenue generating areas. On a year over year basis, the currency impact on operating expenses was approximately $5 million. As a result, the non-GAAP operating margin was 21% in the third quarter, flat compared with last year's third quarter and down slightly sequentially.
Interest on other income was $5 million for the quarter, a 19% reduction over the prior year, mainly reflecting lower yields on a lower average quarterly cash balance, partially offset by currency transaction gains.
Our effective tax rate was 34% and the loss in equity interest was $2.1 million. Beginning in the fourth quarter, ChinaHR will be consolidated in Monster's results.
The diluted share count was $121 million, an 8% year over year decrease, reflecting repurchases of our common stock and a lower quarterly stock price.
Excluding the items we have highlighted, income from continuing operations was $48 million or $0.40 per diluted share compared with $46 million and $0.36 per diluted share in last year's third quarter.
Before discussing the segment results, I want to review the impact of certain adjustments recorded in the third quarter that reconcile our GAAP and non-GAAP results. They are, $3.9 million relating to the defense of a former officer's criminal prosecution which we were obliged to pay, and other associated costs related to the resolution of these matters, and, $3.6 million of restructuring and other special charges primarily related to severance costs.
Including these costs, the GAAP operating margin was 19% and income from continuing operations was $43 million or $0.36 per diluted share, a 38% increase over the prior year.
Our relatively strong earnings result with non-GAAP earnings up 11% and GAAP earnings up 38% in a difficult environment reflect the geographic diversity of our revenue base and our ability to control operating costs.
Turning to the results of operating segments, revenue from the combined careers segments was $298 million, flat when compared to the prior year. Consolidated non-GAAP careers operating margin for the third quarter was 26%, up 100 basis points over the prior year period, but down sequentially.
Our international business generated revenue of $142 million and grew 17% in the third quarter. This slower growth rate is a direct result of the global economic slow down across Europe and Asia. Excluding currency benefits, the business grew 13%. The non-GAAP international operating margin expanded to 22.8% in the third quarter of 2008 mainly due to lower expense levels.
Revenue declined 12% to $155 million in the third quarter as the weaker U.S. economy continued to reduce overall hiring demands. As a result, the non-GAAP operating margin was 28.3% in the third quarter, down sequentially and year over year. Our IAF business generated revenue of $35 million in the third quarter, a 4% increase over the prior year. We remain committed to and encouraged by the performance in our community sites and our global advertising business which are reported with IAF.
The non-GAAP operating margin was 14.4% in the third quarter, essentially flat with the second quarter and down from the 16.3% reported in the prior year.
We were very pleased to complete the acquisition of ChinaHR earlier this month, and believe that it represents a significant long term opportunity for Monster. We acquired the remaining 55% interest for $174 million, significantly below the consideration we originally anticipated. Monster's total investment in ChinaHR is $269 million and we now are 100% owner of the fastest growing on-line recruitment company in the world's largest population center, which boasts the largest internet user base.
Over the years, ChinaHR has been aggressively growing the business. Last year revenue grew significantly as internet penetration and work force formation continued to expand. We are very optimistic and excited about the long term potential of the China market. While we are confident in the long term prospects of this opportunity, the Chinese market and our business are now feeling the effects of the global slow down.
For the nine months ended 2008, ChinaHR lost $18.5 million, of which Monster recorded $8.3 million as a component of equity interests. As we have said in the past, we will be making investments in people, product, marketing and technology to fully capitalize on the potential of this market.
We believe that our strong cash generating capability even in this difficult environment, along with our liquid balance sheet provides the company with the flexibility to accomplish key internal objectives and pursue strategic opportunities. In the third quarter, Monster generated $92 million of cash flow from operating activities and spent $21 million on capital expenditures.
As a result, free cash flow was $71 million which allowed us to spend $42 million on stock repurchases acquiring 2.2 million in shares at an average price of $19.17. In addition, as you know, during the quarter we acquired Trovix for $72.5 million in cash. We ended the quarter with a deferred revenue balance of $412 million, reflecting the weakness in the market.
On a pro forma basis, EBITDA was $92 million in the quarter, resulting in a 28% EBITDA margin compared to 26% in the prior year.
During the quarter we made the decision to draw against our existing unsecured credit facility to provide us with financial flexibility. We have always viewed our revolving credit as an insurance policy and given the events in the market, we felt that it was appropriate to access that insurance during the quarter.
We ended the quarter therefore, with $733 in cash and securities and $486 million after subtracting the $247 million borrowed under the revolving credit agreement. Of course, those figures do not reflect the $174 million payment to acquire the remaining stake of ChinaHR which occurred in early October.
Our financial assets were deployed conservatively in the following areas; 51% in U.S. Treasury only money market funds, 18% in top sovereign debt obligations, 16% in bank deposits at Prime Money Center banks, 13% into auction rate bonds as we had previously discussed, and 2% in Municipal bonds.
Now let's talk about how we are managing through the fourth quarter in this very difficult global environment. It's no secret Monster is most closely associated with the global job market. Our primary source of revenue is recruitment and advertising. We are well aware of the weakness in the global job market and none of us knows the depth and length of this recession.
Also, as many of you know, the fourth quarter is historically a seasonally important one for the company as a large number of global clients, and particular the larger enterprise customers, renew their contracts during this quarter. So many of the key industry verticals which we serve, for example financial services, retail, manufacturing and construction, we are going against severe headwinds as we enter this important renewal season.
As Sal mentioned, we are doing everything we can to work with our clients to maintain our business and win an increasing share. Our global account base is extremely diverse. Monster serves customers in a wide variety of industries in over 50 countries around the world. Our customers range from small businesses to large multi-national enterprise customers.
Many of these clients are struggling and looking to cut their budgets. There are a number of important number of fundamental reasons why Monster is maintaining business and can increase market share. A couple of things to keep in mind. First, even if a client is cutting head count, they may still be hiring. They may be hiring in different geographic areas or different functional areas.
As a direct example, while Monster was reducing our staff by more than 700 associates over the past 18 months, we were also hiring around 1,000 new associates. Naturally, we were using Monster's recruiting resources. Many of our clients are doing the same thing.
Second, as our clients face pressure on their budget, it is important to remember that our model is still the most cost effective way to recruit. Placing more advertising and making full use of Monster's capability can be an effective budgetary trade off for our clients.
Finally, we have been steadily improving the quality of our product and we have been introducing new capabilities. While still early, we are finding that our Career Ad Network product or CAN is gaining traction during this renewal season. CAN is a product designed to proactively find and engage the path for seekers on behalf of our clients across a network of web sites.
Perhaps a quick example will help to illustrate the points we're making here. One of our global clients is a diversified financial services company. The company offers a broad array of credit, savings and loans products including mortgages and is directly impacted by the turbulence in the financial markets.
Through active engagement with the client, we were able to renew their annual contract at 95% of last year's level in September right in the midst of this crisis even though the client was reducing its recruiting needs, we were able to add CAN, increase the client's ROI and increase our share of their business.
So we're working hard with our clients to satisfy their ongoing recruitment needs while improving their productivity. We believe we will be strongly position when the markets begin to improve. But in the short run, revenue and sales will remain challenged.
On the cost side of the equation, Sal has noted that we are constantly managing our expenses in light of what we see on the revenue side. The results of our restructuring plan and our decisive action in the face of the currently weak economic environment, we have been able to flatten out and then reduce our operating expenses which were $14 million lower in Q3 than in Q2.
Since we took preemptive action early, and benefited from Q3 from those actions on the expense line, based on what we currently see on the revenue line, we do not believe that it would be advisable to extrapolate off the reduction in operating expenses which we produced in Q3. Based on current visibility we believe that operating expenses will be down during the fourth quarter, but not at the same rate as Q3 versus Q2. This is before we factor in the consolidation of ChinaHR.
Rest assured that we will continue to monitor revenue and as Sal has mentioned, we do have the ability to further reduce operating expense if events warrant. I will now hand the call back to Sal for his closing remarks.
My comments have been very brief today, but I want to be sure I'm clear. We are very confident in the company's long term potential. We are seeking out every opportunity to increase revenue and market share. We weight carefully every dollar we spend. We are making sure that every dollar spent brings us the best return possible.
We will continue to invest for the future. We will continue to modify our short and long term strategy as the severe economic instability the world faces continues to evolve. Our goal is simply to deliver the best value to our customers bar none, which in turn will allow to significantly increase shareholder value.
I want to take this opportunity to thank our customers and partners for their continued support. I would also like to thank our associates for their enthusiasm and absolute dedication to moving Monster forward. They have our promise that we will do everything in our power to navigate through this difficult economy and I would like to thank our shareholders for their ongoing support and interest in Monster. Thank you very much.
(Operator Instruction) Your first question comes from Mark Mahaney – Citigroup.
Mark Mahaney – Citigroup
Can you comment on linearity throughout the quarter in terms of September coming out versus August and July and any kind of segmentation in terms of Western Europe versus other parts of the international market?
I think the quarters, this is not just something that occurred in Q3 but also we saw the same thing in Q2. There was not a great deal of linearity. Results, revenues are actually quite lumpy. You see almost a lot of correlation between the news and the financial markets, the amount of press that's out there about the credit crisis, the stock market, unemployment etc., and the activity that we see.
There was no question as you may recall at the end of September we were reaching the height of the crisis in credit when Congress was stagnating on what actions to take with all the debating etc. We saw cessation on transactions that were being discussed not only here in the U.S. but in many countries around the world, and many of the key centers where we operate.
From what we can tell and from conversations that we've had not only in our own industry but in others, that's not very consistent with what happened in many places. We see that same lumpiness occurring, it's very early obviously in Q4, but we see the same thing today. So there really is not pattern to it. It is basically the flavor of the day and it's as hard to track as the volatility is on the stock market right now.
That's unfortunately we can't give you a better read than that, but I want to re-emphasize a couple of comments that Tim made. In spite of what's happening out there and all the doom and gloom, Monster did have revenue of $332 million this quarter. That means that companies out there did spent $332 million to recruit people, even people that were laying off, significant layoff.
I can't mention their names. We have a practice of not doing that, but we have customers that have announced layoffs into the tens of thousands of people that have renewed and renewed to a very high degree of their former activity with Monster.
What we're also seeing is that while they may be cutting back on their overall spend, either a greater share and in a few cases, their total share of spend is going to Monster. This is directly as a result, we starting to show the customers what it is that we're going to roll out in the first quarter as regards to product and technology, both on the seeker and employer side, the changes that we're making in customer service and a number of other areas. They like it and do a lot of business in proportion of what they're spending to Monster.
Bottom line, there's a lot of activity going on out there. It's not all doom and gloom. Do I believe that we may see further contraction overall? Yes, that's certainly possible. I would not be surprised particularly over the next quarter or two, but I think we also need to keep in mind there's a lot of activity.
Within Europe, the U.K. is the most significantly weak market. The other markets are performing pretty well. The U.K. and their exposure to the global financial services business and I think we mentioned that last quarter as well.
Your next question comes from Monica DiCenso – J.P. Morgan.
Monica DiCenso – J.P. Morgan
Can you talk a little bit more about your capital allocation plans in light of where the stock price is and the buy back set to expire in January? I would like to hear a little bit more of your thinking there.
I think we did slow down. We did buy $42 million worth of stock in the third quarter. I think our current thinking is that most likely we will slow down considerably in buying back shares. That is not at all because we believe the stock is undervalued but it's an exercise in keeping our powder dry.
I think as much as Monster shares have dropped in value, so have a lot of companies and I think there are some opportunities out there that may be very interesting to us, but it would behoove us to keep our powder dry so that if any of them prove to as attractive as they might be, we have the wherewithal to make those investments.
Also particularly given the crisis, credit markets have eased up a little bit in the last week or two but I think that given the severity of the crunch, that we though it prudent even though Monster produces cash at a very healthy rate, we thought it would be better to keep our powder dry.
It's also why we decided to draw down our credit line, is to be prudent. Right now the best way to summarize it is that we're going to very, very cautious in protecting that cash and look if there are opportunities out there that we think will provide significant return for our shareholders in the future; we may decide to take some action. But as I said, the word for the moment for us is we're going to be as cautious as we possibly can.
Monica DiCenso – J.P. Morgan
Regarding advertising of the new agency release and the great new campaign that came out earlier, are you seeing this environment as a time to spend a little more to grow your brand or is this a scenario where you would cut back a little and spend more on-line and protect margins as we head into next year?
I think we have a couple of things going on. First of all, BBDO has been a tremendous partner. Over the last year we've learned with Monster in terms of how it spends with the help of BBDO in running a number of things. The value we're getting per dollar spent is up sharply. Our traffic numbers are one demonstration of that. We're doing much better than we were doing while spending less money.
As to the future, I think in Q4 you'll see marketing spend that's roughly in the same vicinity as what you saw in Q3 plus or minus a few million. I think in Q1 we have, on Investor Conference Day you'll hear and see much more about, because of the product launch that we have, I think you'll see a fairly significant upswing in marketing spend in Q1.
It will not be, it does need to be as significant as what you saw in Q1 of this year, but I think you will see an upswing to promote and to make sure that we publicize appropriately the investment that we've made in product and technology for our customers. I think you'll see some upswing there.
I think BBDO as we speak is working on a campaign for the coming year and I think it will be fairly interesting.
Your next question comes from Christa Quarles – Thomas Weisel Partners.
Christa Quarles – Thomas Weisel Partners
I was wondering if you could comment on any traffic increases particularly by region. You have more seekers out there as people are getting laid off and I was curious as to what your product response is in terms of trying to re-engage with those seekers. What is the performance criteria for your increased equity compensation? I assume you are purchasing the stock with loans, and I wanted a clarification on that.
It's with his own funds.
Performance criteria, what we've been trying to do is to figure out and we've been working on it for some time, a plan that we believe will closely tie to the executive team. It's closely tied to the interest of the shareholders but we're always looking for opportunities to enhance that and that's what we should be doing and making the shareholders as comfortable as possible that their fortunes and our fortunes are as correlated as they can be.
We what we've done is we have put a program in place which is predicated, we though the best total we could use is stock price, that upon reaching several different levels in stock price that amounts of equity would be invested for the participants. At the same time as that program has been put in place, and this was volunteered, it was not forced; the executive team decided that any incentive compensation that they would receive that the Board decided to grant for this year, that the executive team would only take it in the form of equity.
Now we still have to work out the mechanics of exactly how that would happen but in essence anybody on an after tax basis, any incentive comp that the executive team including myself receives, will be only in the form of equity.
The third thing that Tim just talked to, Tim and myself have decided that to demonstrate our resolve and our belief in the future of this company, and in addition to the fact that quite a bit of our compensation is obviously in the form of equity, but we've decided to use our own balance sheet to purchase in my case $1 million and Tim's case $500,000 of Monster shares.
We'll be doing that as soon as the window opens next week, probably Tuesday, Wednesday next week.
Christa Quarles – Thomas Weisel Partners
The first question related to traffic increases by region and what you're doing to reengage.
What we're seeing in regards to traffic is that first of all, unemployment is up and we are seeing more people looking for jobs and more people are coming to Monster. We're also seeing because of our on-line marketing spend and investment and a more intelligent way of doing it than we have in the past, is bringing very good results.
We're seeing a good increase, a very significant increase in traffic overall as a result. I think a part of it is due to unemployment being on the rise here and international. Also I think it's the methodologies we're employing for their online spent. Mark Stoever is here and I'd like to add to my comments.
I think we've seen since the first half of the year, probably four or five consecutive months of continued growth. Certainly our internal metrics report that but I think if you were to turn to media metrics you're going to see the consistency there. A large part of it is just what we've been saying over the previous quarters about fixing the core and making sure that as seekers come to the site they get that experience so they want to come back.
I think a lot of it is the first half marketing and fixing the site. We're starting to see some of it related to the economy but the best response is, we're in a good base level to start to now grow from there. What we would expect to see is a continued increase and a larger percentage of seekers as a result of the down market.
I think as the word gets out about the improvement and what's happening on the seeker side of the equation, I think that that's going to produce some very interesting results as far as traffic. The work that's being done on the seeker side is virtually total, as close as you can think of in terms of changing the seeker experience overall.
And I think some elements of that are going to get out there and as it rolls out on a more substantial basis, and here in the U.S. the roll out is the second week of January we should see some very interesting results from that.
We're seven weeks away from launching the new seeker site. It's a very different experience and the 90% range of being rebuilt. It's going to be the most personalized experience of any recruitment site with significant improvement in any apply or any process on line as well as the number of new career management applications that don't exist today in the market place.
The combination of those as well we are launching in Q4 a number of applications on the employer side as well as trying to integrate tool links. In December you're going to see the data search, controller as well as you're going to see a new application on the employer side as they roll out in December.
In Q1 and Q2 you're going to see a number of significant improvements on both the seeker and employer side.
Your next question comes from John Janedis – Wachovia.
John Janedis – Wachovia
Can you remind us how much of the business in based on contracts and from a related perspective I'm trying to understand the underlying trends of the business a little bit better meaning you're booking the revenues from the annuals based on pre-payment of the contract but of the posting that are paid in advance, can you give us an idea of what percent are actually used by the employers? I'm just trying to get a better sense of to what extent employers may have overbought.
With regard to the second question, our experience to date, customers buy either annual contracts or in some cases semi-annual, in some cases quarterly. The usage is not varying tremendously. I think that these contracts are such that the way they're drawn is that customers sign up to use within a period a number of search, and they're committed to do that.
If you asking are we seeing that a number of significant amount of unused is moving forward or that we're having trouble in collecting on those contracts, the answer is no. There is certainly slow down in renewal in the sense of, not market share, and we're very happy to see. Market share is maintaining or actually improving in a number of areas and I think because of all the things we've been saying on this call, and that will continue.
The amount that they're buying even though our share may be increasing, the amount that they're buying overall in many cases is decreasing. Companies as you might expect as they're seeing the economic slow down evolve, as the move whether it be the credit, the stock market etc., is all having an impact of people just being cautious in their spends.
What we hear quite a bit about are people who would rather commit to less going forward and then will come back as things evolve to buy more as they may need it which is understandable and prudent, and to be honest if I were in their position, I would be doing the exact same thing. So we're seeing quite a bit of that.
Another point to make, to resume made part of our business is not usage based, it's subscription based, so the part of our business which is resume's which we do monitor of course, is not relevant to it. We also have some contracts, the pattern in Europe is a little bit shorter contracts, so there's no simple answer to the question in terms of we're not seeing a large amount of unused inventory under annual contracts.
Let me be clear about one other thing. We do not take into revenue contracts unless we're fairly certain those contracts have been utilized and been paid for. We're very conservative as a general matter in that area. When there is any question whatsoever that we may either not get paid or that there will be some issue in that regard, we simply do not record revenue. We'd rather err on the side of conservatism than have a situation where we have to reverse in the future.
We've seen no results thus far and we're in the early stages of the economic downturn. We haven't seen anything that causes us to be concerned or alarmed about our methodology today.
John Janedis – Wachovia
The first part was what percentage of your business is based on an annual contract?
I don't have those. We can get back to you on that. I really don't have those numbers at my fingertips. Historically certainly for our big customers, the majority are annual contracts, but I don't have the specific numbers.
I don't have the specific numbers and we'll provide that but over time it is changing. In Europe they tend to be somewhat shorter and in North America there are some shorter contracts happening and there are newer products for example, CAN, is more performance based than usage based.
Because of Monster's lack of introduction of new product etc. for quite some time, and now we've been talking to our customers and we're telling them that there is a lot of change coming and it's coming in fairly short order. It's January. On the employers side they're starting to see it as we speak.
What I've encouraged the sales force to do is rather than have customers renew and wonder about whether or not we were really come through with what we said, that I've done it to say, renew for a shorter periods. Let them see it. Let them taste it. Let them feel it, and then renew going out further. I think that will serve us well. I think we're very confident and I'm not given to being overly confident.
I think we're very confident in what we've got to deliver and I think that by letting them see it will serve us well and we'll get better renewals or stronger renewals as time goes on. It's just a matter of practice right now. We're encouraging that by our sales force, and it is paying off. We're seeing customers happy to do that both because of the economy but also because they can buy knowing exactly what it is they're going to be buying in the future.
One caveat to add in. There's a lot of quarter left so there's a lot of renewal action to happen so what we're reporting on is as of what we see today.
John Janedis – Wachovia
Can you help us with dilution for 4Q?
We gave you what the numbers were year to date. We're not specifically giving guidance but when we consolidated the company, the results and the order of magnitude will not be materially different in Q4.
John Janedis – Wachovia
In terms of incremental investment is that more of an '09 event?
That's more of an '09 event. At this stage of the game I think that's realistic.
Even if we wanted to make the investment, there just isn't enough time left this year to be able to do it in any size. We may spend a few dollars in terms of some marketing, some tactical things, but the substantial investment will be an '09 event.
Your final question comes from Peter Appert – Goldman Sachs.
Peter Appert – Goldman Sachs
Can you talk about how much you think the re-launch is going to cost you in the first quarter? Can you comment broadly on what you're seeing from the pricing standpoint in the business?
When we go to the spend in Q1 for marketing I figure we will be up because we have a massive re-launch that we want to get out there and make sure that do it justice. We have a plan. It is still a little bit better than preliminary it's sort of in the middle right now that we're working on with BBDO. The spend will not be anywhere near the order of magnitude of what we though we needed to spend in Q1 of this year to rebrand the company but it will be more of a spend that what you're seeing Q2, Q3 and probably hopefully in Q4. Q4 will probably be in the same range plus or minus a few million dollars to Q3.
Unfortunately I can't give you a number of Q1 but you should expect somewhat of an upswing and hopefully you'll like where we spend the money.
At the current time particularly in these times, I think that we're going to try to hold prices steady and not increase them. I think what we're going to show, as I've said for some time, Monster has not invested properly in itself and in the product. I think we want to hold the price. Let everyone see it. Let them taste it and particularly given the economy and all, we don't think it's the right time to raise prices. In the future based on when things clarify themselves some more, we'll revisit the issue.
Peter Appert – Goldman Sachs
How about the price cuts by some of the other players in the market? How is that impacting you?
We are very aggressive. As I've said before my strategy, the firm's strategy, the executive team who's sitting here with me is, we are very aggressive in capturing market share. We will do virtually anything we can do to satisfy the customer needs and take market share from them.
Right now I will not lose an opportunity to gain a customer and to show them what we have to offer because of price. So we are very competitive on price and will continue to be competitive. It paid off. It's actually helped us get through this tough period.
I'd like to thank everyone for joining us this evening for our third quarter 2008 conference call. You can access the call on the investor section of the Monster World web site. I look forward to seeing many of you at our Analysts and Investor meeting on November. In the meantime, please feel free to call me anytime, 212.351-7032 with any further questions. Thanks again.
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