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Monster Worldwide Inc. (NASDAQ:MNST)

Q1 2007 Earnings Call

April 26, 2007 10:00 am ET

Executives

Bob Jones - IR

Sal Iannuzzi - Chairman and CEO

Lanny Baker - CFO

Steve Pogorzelski - President of Monster International

Doug Klinger - President of Monster North America

Mark Stoever - President of Internet Advertising and Fees

Chris Power - CFO of Global Operations

Analysts

Lisa Monaco - Morgan Stanley

Christa Quarles - Thomas Weisel Partners

Jeetil Patel - Deutsche Bank

Mark Mahaney - Citigroup

T.C. Robillard - Bank of America Securities

Imran Khan - JP Morgan

John Janedis - Wachovia

Tobey Sommer - SunTrust Robinson Hump

William Morison - J. P. Morgan Securities

Presentation

Operator

Good morning. My name is Mathew and I will be your conference operator today. At this time, I would like to welcome everyone to the Monster Worldwide First Quarter 2007 Earnings Call. All lines have been placed on mute to prevent any background noise.

After speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. I would now like to turn the call over to Mr. Bob Jones, Vice President of Investor Relations.

Bob Jones

Good morning and thank you for joining us on Monster Worldwide's first quarter 2007 conference call. Our format calls for us to have formal remarks from Sal Iannuzzi, Chairman and Chief Executive Officer, and Lanny Baker, Chief Financial Officer.

Joining us for the question-and-answer part of the call is Steve Pogorzelski, President International; Doug Klinger, President of Monster North America; and Mark Stoever, who overseas Internet Advertising and Fees. Chris Power, CFO of Global Operations, is also with us this morning.

Before we begin, I'd like to remind you that except for historical information, the statements made during this conference call constitute forward-looking statements under applicable securities laws.

Such forward-looking statements involve certain risks and uncertainties, including statements regarding the company's strategic direction, prospects, and future results and do not include the effect of the defense or outcome of the ongoing investigations, or litigation relating to past stock option grants.

Certain factors, 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 acquisitions, competition, and the other risks discussed in our Form 10-K and our other filings made with the Securities and Exchange Commission.

With that, I'd like to turn the call over to Sal for his comments.

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Sal Iannuzzi

Thank you, Bob. Good morning. It's great to be with you. It is my first conference call as Chairman and CEO of Monster Worldwide. I've been CEO for just two weeks, so my comments this morning will be brief.

As you know, I joined Monster Worldwide Board of Directors in July of 2006, and I have been Chairman of the Executive Committee for the past several months. Just at a time of getting a great feel of respect for our company and our people.

The days following the announcement of my new role, I've met and spoken with many members of the global Monster Worldwide team, including business unit heads, sales personnel and line associates.

That experience has only strengthened my enthusiasm for our brand and my confidence in our future opportunities. I would be the [wingless], if I did not thank Bill Pastore for his extraordinary leadership during the challenging period of the last few months.

The Board joins me in recognizing his efforts to move the company forward, and in wishing him the best in the future.

As many of you know, I most recently was President and CEO of Symbol Technologies. I believe, I'd bring a fresh perspective to Monster, both as a former CEO of an innovation-driven technology company, and as an executive with broad operational and executive responsibilities for global businesses.

I have a head start and I've already been associated with the company for the past nine months, as a Board member. I will be spending the next few months, gaining even more in-depth perspective on each of our global businesses, operations, and the growth potential.

I plan on listening, learning, and coming up to speed quickly, so we can maximize the opportunities for profitable growth. My goal is to make sure that we have the right strategies to continue delivering superior customer service, quality operating and financial performance, and increasing shareholder value.

One of our main objectives will be to retain and attract talented people by rewarding superior performance, and providing career development opportunities within our organization.

As the outlook in today's news release suggests, we are committed to investing in our businesses to build a competitive advantage. We will maintain in steadfast commitment to investing in product development, technology enhancements and advertising.

Although my comments are brief, I want to emphasize a core message this morning. Our Board of Directors and our senior management team are in strong agreement that is critical to invest in the future of this company, so that we can deliver the best and most innovative products to our customers efficiently.

We believe this approach will enable us to deliver strong long-term results for our shareholders, and the delivery of sustainable long-term growth is our most important objectives.

At this stage, it's not possible to predict whether we will need to refine or redirect our strategy going forward. However, I can tell you that we exceptional strengths and assets.

Monster is a powerful brand. Widely recognized and well regarded amongst employers and job seekers. We created the online career services business, and that gives us tremendous platform to build for the future.

We are global, in fact Monster is only online career service company that can [comply] to be in 38 countries and to be number one or two search site in more than half of those markets. That means in growth opportunities are not limited to any one region.

We are focused on our online, careers, internet advertising businesses. Our strategic decisions will be based on our assessment of the growth prospects in our core marketplace.

We have shown the ability to deliver strong financial performance. Lanny will detail in a few moments. We started the year with strong revenue growth, solid profitability and a healthy cash position.

Our greatest asset is our people. As a Board member and now a CEO, I've met a number of the many highly talented and enthusiastic associates.

It will be my privilege to get to know them in the days and weeks ahead. I want to specially thank them for their hard work and dedication in making Monster the industry leader that it is today.

Before turning the call over to Lanny, I want to personally thank our customers for their support. We value our business relationship, and we continue to work hard to innovate and provide solutions for the human capital needs. As far as shareholders, we recognize our responsibility to serve you and sustain long-term value.

To sum it up, I am tremendously enthusiastic about the future of Monster Worldwide, and I am committed to working with our team to accomplish great things for our customers, shareholders and associates.

With that, I'll turn it over to Lanny.

Lanny Baker

Thank you Sal, and welcome aboard. Monster's first quarter results reflect strong overall revenue growth, healthy profitability, and robust free cash flows. However, the results were not as strong as we originally expected.

Overseas, we continue to execute very well in the first quarter with increased organic revenue growth, and strong year-to-year gains in margins.

In Careers - North America, we achieved lower revenue growth as the trend of moderating help-wanted, spending continued. And in the Internet Advertising & Fees business, our softer revenue performance directly impacted the unit's margins.

But we are not completely satisfied with our first quarter performance. We remain confident and optimistic about the global opportunity available to Monster, and we are fully committed to funding the investments, new products and innovation that will satisfy our customers to drive the long-term growth and build shareholder value overtime.

With those comments and the first quarter's performance in mind as you will see in the revised business outlook provided today, we have node our full year revenue and operating expense ranges with a plan to preserve key investment activities in product, people and branding, displace a slightly softer revenue picture. The net result is a lower earnings outlook that we provided earlier.

Our fundamental view of Monster's earnings potential both near-term and longer-term has not changed. However, we carefully utilized our plans and the opportunity, and we are making strategic decisions to maintain healthy investment levels today that we believe will maximize long-term growth in the future. The underlined message is one of opportunity and long-term focus, as Sal described.

The migration of recruitment advertising and career-related activities under the Internet is a well-established global trend, and one for which Monster is uniquely positioned.

Before we capitalized on that opportunity, we will invest aggressively, leveraging our online and careers expertise and the strength of our financial model to grow the overall market and Monster’s share.

Looking at the first quarter, the financial highlights include overall revenue growth of 28% year-to-year powered by an exceptionally strong 64% revenue gain in international.

EBITDA margins in our Careers businesses expanded by 200 basis points year-to-year in North America and by more than 450 basis points in International.

Reported earnings of $0.30 per share in the first quarter included $0.05 per share of cost associated with the ongoing option investigation.

Free cash flow was $57 million in the first quarter or nearly 80% of EBITDA and a 145% of net income even as we stepped up capital expenditures in the quarter.

Finally, we ended the first quarter with $674 million in net cash and marketable securities, an increase of a $100 million from December 2006.

Before discussing our results in greater detail, I'd like to point out two housekeeping items. First, the first quarter 2007 results include legal and professional service fees of $9.8 million before taxes, which relates to the ongoing external investigations of historical stock option grant practices.

These expenses were recorded within the office and general line on the income statement, and within the corporate line in our segment data.

Looking forward, we anticipate that we will continue to incur cost related to the ongoing option investigation and related legal matters. However, as we've indicated previously, Monster has very limited visibility into the size and timing of these potential costs, and we do not believe we can accurately estimate or forecast these expenses at this time.

As we report future financial results and in cases where we maybe come aware of significant option-related cost or expenses that we can identify, we intend to disclose these costs in a prompt and transparent manner just as we have today.

Second, as disclosed in an 8-K filing on April 16, we will record a severance charge of $12.7 million pre-tax in the second quarter of 2007 related to the departure of the company's prior CEO.

The charge is expected to reduce second quarter and full year earnings by approximately $0.06 per share after tax, and this is included within the expense figures in the business outlook, which I will discuss in a few minutes.

Turning to the first quarter results, total revenues increased 28% to $329 million, consistent with our announcement on April 4, and $1 million below the outlook range provided on February 1.

Overall, organic revenue growth was 24% in the first quarter, compared with a 29% organic growth rate in the preceding quarter. Revenue growth of 64% in international was stronger than we anticipated, while a 15% revenue growth rate in Careers North America was below our expectations for the segment in the quarter.

IAF revenue grew 20%. Total operating expenses were up 33%, compared with the first quarter of 2006. Exclusive of the option-related cost mentioned earlier, total operating cost was 28% year-to-year to $261 million, which was towards the lower end of the outlook range established in February.

Marketing spending was $78 million in the first quarter or just under 24% of revenue. Salary and related expenses were a $122 million up 34% year-to-year, reflecting increased investments in people, including expansion in the product development and technology area.

Operating income was $58 million or $68 million prior to the option investigation cost recorded in the quarter. EBITDA was $72 million or $82 million, exclusive of the option cost.

Normalizing for the non-operating cost, the company's operating margins and EBITDA margins were essentially flat year-to-year, and EBITDA growth was 27% year-to-year in the first quarter.

Below the line, higher net cash balances drove increased interest income. The first quarter equity loss of $1.4 million was considerably smaller than we anticipated, due to the bottom line performance ChinaHR in the quarter, complemented by income from a small investment made in 2001.

Exclusive of the option-related cost in the quarter, earnings per share were at the upper end of our expected range. Moving into the segments results, Careers North America revenue grew to 184 million in the first quarter.

Going into the first quarter, we anticipated that revenue would decline from the rate seen in the fourth quarter and the effective moderating economic and hiring trends was slightly greater than we anticipated during the first three months.

That said, the secular shift towards the internet and purposeful expansion of Monster's sales distribution through new hires, internal organizational efforts, and external partnerships enabled us to continue to gain market share within the overall domestic help-wanted advertising market.

The Enterprise segment of our North American business remained strong, as average order size grew and our top customers increased their business with Monster in the quarter.

A growing list of multinational customers are now taking advantage of Monster's global presence, and our cross border sales are growing significantly with considerable opportunity ahead.

At the other end of the spectrum, we have seen customers in the smaller to medium size range spend more cautiously. This was particularly evident among the smaller customers and within our self service or eCommerce channel, where revenue was essentially flat year-to-year in the first quarter.

We are actively working on product enhancements, pricing strategies and marketing efforts, designed to rebuild momentum in the eCom channel as the year progresses.

Additionally, we expected investments and refinements we made in our U.S. telesales organization which was live just within last month will help improve revenue growth and sales productivity amongst small to mid sized clients.

As well, we've seen encouraging initial progress in our media partnerships, and we expect traffic and listings growth to deliver a revenue lift as the year progresses.

For the first quarter, Careers North America generated EBITDA of $71 million, compared to $59 million in the year-ago period. Despite the slower revenue trend in the quarter, the incremental EBITDA margin in Careers North America was north of 50%, comparable to the prior quarter.

Looking ahead, we expect to arrogate the investment in products and step up investments in marketing and sales, meeting the lower levels of incremental profitability.

Moving to Careers International, significant investments in our platform and franchise combined with our favorable secure and economic backdrop propelled revenue growth of 64% in the first quarter.

Excluding currency benefits and a slight contribution from our acquisition in Norway, organic revenue growth in International was 51% year-to-year in the first quarter, improved from 47% in the fourth quarter.

Within the International business, we are pleased with not only the strength of Monster's growth, but also the best of the momentum. Organic revenue growth accelerated in two-thirds of our International markets in the first quarter, compared with the fourth quarter, including Germany, UK and Ireland, the Netherland and in India. The countries in which we've invested most heavily in the past year.

In Europe, our efforts to establish and rapidly grow the eCom sales channel are bearing fruit with revenue up well over a 100% year-to-year in the first quarter. The eCom channel provides not only a highly profitable revenue stream for Monster, but also, a top quality source of customer leads.

Combined with our ongoing investments in marketing to drive traffic and brand awareness, eCom clearly contributed to the 26% improvement in sales productivity in Europe and help propel the International EBITDA margin to 12% in the first quarter, a 460 basis point increased year-to-year.

Given the opportunity, we see in hand, we'll continue to actively invest in marketing, product and talent overseas. We added 375 people in International during the quarter, and our product and technology spend grew at a faster pace than revenue.

We believe these timely investments will continue to generate the very attractive returns for Monster and its shareholders, as the global online recruitment market develops.

Turning to the Internet Advertising & Fees business; revenue growth was 20% for the quarter, compared to the 31% in the prior quarter. Several factors are contributing to the reduced revenue growth of the IAF segment currently, including slower growth in overall users, reduced lead-gen volumes, and tactical decisions we are making regarding some of our properties including Tickle.

On the brighter side, we continue to develop new advertiser relationships and display advertising revenue, which accounts for about a quarter of the segment's total revenue grew at mid-30% range in the quarter.

However, with slower overall revenue growth and the increased sales and product infrastructure that are in place, the unit's EBITDA margin declined to 17% in the first quarter, as compared to a mid-30% margin last year.

We've already begun to address the recent growth challenges in the IAF segment with investment in new products and fresh content, as well as in sales capacity and either reflected in the first quarter cost structure.

In addition, we're evolving our marketing strategy to link the IAF properties and Monster together into a more efficiently connected worldwide network. While it may take some time for these initiatives to generate their full benefit, we remain committed to growing this element of our strategy going forward.

Turning to the balance sheet, cash and marketable securities net of debt, totaled $674 million at the end of the first quarter, $100 million higher than at the end of 2006.

Cash flow from operations was a healthy $79 million in the first quarter, and the company generated $57 million in free cash flow after capital expenditures of $22 million in the quarter.

Our capital investments in the quarter reflect increased server and development capacity, data storage upgrades, as well as the normal growth accompanying Monster's expansion. We are on-track for roughly $75 million in capital expenditures for the year.

We saw about $50 million in cash proceeds from stock option exercise and the related tax benefits during the first quarter, offset by a total of roughly $8 million in cash used for a small acquisition funding to equity investees and other items. Deferred revenue stood at $450 million at the end of the first quarter, 31% higher than at the same time one year ago.

Finally, the weighted average fully diluted share count was 132.5 million shares in the first quarter, up 1.4% from a year earlier, primarily due to issuances for stock option exercise.

Let me now turn to the business outlook. As we introduced an outlook for the second quarter and update that full year ranges. Those that we've not included any costs associated with the stock option review in our business outlook. Those the $9.8 million of fees recorded in the first quarter and any perspective fees, fines or settlement cost beyond the first quarter are excluded from the outlook ranges.

Now for the second quarter of 2007, we expect revenue up $333 million to $341 million, an increase of 22% over the prior year at the midpoint of the range. Within that, we anticipate that revenue growth in Careers North America will moderate further from the first quarter, continuing the trend seen in the last three quarters.

International revenue growth is expected to be healthy in the second quarter, drawing on the best of momentum described earlier, as well as our continued investment focus.

In the IAF division, we will cycle through the benefit of the [EDU] acquisition at the end of April and we expect revenue growth in the low double-digits for the second quarter.

Including any option-related cost but including the 12.7 million severance charge discussed earlier, we anticipate $282 million to $290 million in operating cost for the second quarter of 2007. Exclusive of the severance cost, the underlying expense outlook is $269 million to $277 million.

Relative to the first quarter of 2007, we expect higher salary and related cost in conjunction with hiring activity, particularly in product and technology areas. Additionally, we plan to make similar marketing investments in the second quarter as in the first.

At these revenue expense and expense levels, the overall EBITDA margin is expected to decline year-to-year in the second quarter even excluding the severance and option-related cost. However, we expect Career's North America's EBITDA margins to remain in the mid-to-high 30's in the second quarter with further margin expansion in international at the same time.

Below the operating income line, we anticipate $5 million to $6 million in interest and other income in the second quarter, and our tax rate should remain at the 35% level. Our share of ChinaHR loss is anticipated to be in the same range as the year earlier between $2 million to $3 million.

Turning to the full year, our new revenue range is $1.36 billion to $1.395 billion, with $15 million removed from the top end of our prior outlook range and anticipated full year revenue growth of 23% at the mid-point of the new range.

On the operating expense front, we continue to fund key investments in our products, people and brands during 2007, and we will keep our focus on the long-term strength of the franchises as we do so.

We remain confident and enthusiastic about Monster's long-term potential and our operating model is one that has consistently shown the rewards of additional investments in pursuit of long-term growth and profitably.

We now anticipate full year operating expenses of $1.07 billion to $1.1 billion, excluding any option cost but including the severance charge to be taken in the second quarter. Without the one-time severance charge, the expense outlook would be $1.057 billion to $1.087 billion, shifted slightly towards the upper end of our original expense outlook range.

Below the line, we expect $23 million to $25 million in interest and other income on slightly higher cash balances. The tax rate should remain at 35%, and we now anticipate $9 million to $11 million in equity losses from ChinaHR for the year.

In summary, Monster generated both strong revenue growth and solid overall profitability and cash flow in the first quarter. The Careers North America business is outpacing the overall growth of help-wanted advertising and is investing actively in new products and services that differentiate and drive value for customers and seeker.

International is clearly on track, delivering a robust topline along with increasing profitability, as we extend our leadership globally. The IAF business is in a stage of development, where the growth can be uneven, but we are committed to grow in a strategically valuable element of the Monster business.

The opportunity in online recruitment is significant, and it's global in scope. We are focused on strengthening the fundamentals of our business from products to people to the brand, and our objective is to deliver the long-term growth and profitability that we believe leads to increased shareholder value.

I'll turn the call over to the operator for your questions now. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Lisa Monaco with Morgan Stanley.

Lisa Monaco - Morgan Stanley

The Board's rationale for bringing you onboard to the CEO and Chairman position. And then, I have a follow-up question. Thanks.

Sal Iannuzzi

Well, Lisa I missed the first couple of words of your question, would you mind repeating that.

Lisa Monaco - Morgan Stanley

Sure. Can you just elaborate on the Board's thinking in terms of bringing you onboard as Chairman and CEO? What you are charged with and obviously you have a view in terms of investment spending. And if you could elaborate on why you feel the need to ramp up the investment spending? Thanks.

Sal Iannuzzi

Sure, well first of all with regard to bringing me onboard, Bill Pastore stepped into quite a breach within these companies when leaving over the last fall. And Bill had indicated from the very beginning, that he had from a life perspective, wanted to spend more time with his family. And so, given my situation at Motorola or I should have said Symbol Technologies before that, this was a time that the Board felt, it would be good to make a transition.

With regard to the investment in the company, I think that we are united on this, both the Board and the management, most of which are seen across the table or next to me here in this room.

We are united and one thing, we think we have a tremendous brand, and there is a lot of evidence to back that up. The question is how we make sure that we preserve that brand, roll it and move it forward.

Someone said we are a good company and asked how we become a great company. I think we are a great company; it's how to make it an even greater company.

There is an economic reality obviously from watching quarter-to-quarter.

But in reality this is a long-term play. Watching quarter to quarter is not something we are interested in, or I am not going to mange this business. And I don't think anyone around this table and certainly not the Board wants this business managed on the quarter-to-quarter basis. It's a long-term investment, that hopefully will deliver and I believe certainly it will, long-term growth for the shareholder.

Lisa Monaco - Morgan Stanley

Okay. And then Lanny, could you just give any color on the competitive landscape. CareerBuilder reported a 20% gain in revenues and the North America Careers was up 15%, and looking at job posting it looks like Monster actually outperformed CareerBuilder in the first quarter. So, I am just not sure, trying to get a better sense and the reason for the underperformance on a relative basis in Monster's North American Career, thanks?

Doug Klinger

Lisa, this is Doug Klinger. I will take that question from you. First of all just in terms of looking how we characterize this competition. Our unique visitors are up and our cost per visitor is down substantially. Our renewal rates across the business were solid in the first quarter. We’ve driven mid single-digit price increases that have stuck across the business.

Average order sizes are up across the business including in the eCommerce channel. I think from a competitive standpoint, clearly there are some competitors out there and they are hoping to expand the category which is good for all of us.

There are also some smaller competitors, niches and networkers and so forth that are trying new approaches and different revenue models that provide a window into perhaps new opportunities for us.

I think the most important message though is, we are gaining ground on our largest online competitor, something we've been doing over the last several quarters, as well as gaining ground on newspapers that are not currently our partners.

On specific to CareerBuilder, which you mentioned, they did report 20% growth or so. We think much of that growth is a function of increasing prices, but that’s what we see in the market and I guess it was some kind of corresponding message around profitability.

So, I think our business is about what we deliver. I think we have lost focus on what a specific competitor is doing or isn't doing, and I think our customers are rewarding us for continuing to deliver good value.

Lisa Monaco - Morgan Stanley

Does that mean that they have better pricing ability? I think they're a little bit lower than Monster in terms of prices. So, are they getting more price increases through?

Doug Klinger

I don’t know if they will be getting more price increases still. I think CareerBuilder and some of the other competitors have tended to under-price Monster and you can talk to the customers to see about what the perception of value was. But I think some of the revenue growth is clearly from what we seen in terms of are movements to try to get more out of their base.

Lisa Monaco - Morgan Stanley

Thank you.

Operator

Next question comes from the line of Christa Quarles.

Christa Quarles - Thomas Weisel Partners

Hi, first question is just on, what your level of confidence is in your new guidance. Obviously the deferred revenue growth was exceedingly strong. Just, how much visibility do you have today, obviously not as much on the self-service business.

And then, the second question is, you did continue to hire, it sounds most of the new hires were based internationally. I guess if you could discuss investment spending in the U.S.? And then, the third question just comes around with the paper partnerships that you have. Obviously you've had some success with some of the larger papers, but if you could just highlight any impact at all that you are seeing from the Hutch or Yahoo in the marketplace? Thanks.

Lanny Baker

Okay, Christa, I will talk about the first two and then let Doug talk about your third question. From the outlook that we provided for the year, this is based on the trends and the investments, and the plans, sales plans that we have, our other initiatives in place. And we have our normal level of confidence about that outlook for the year.

We have seen a little bit slower trends over the last six to eight months, nine months. However, I would also point out that the unemployment rate is in the mid-to-low 4% range, and it's a relatively healthy employment market out there.

Our postings growth, as somebody talked about earlier is still strong. And I think relative to the overall pace of the recruitment advertising market, Monster is doing very well here in North America. Overseas, we talked about the strength and breadth of the numbers.

The big markets where we've invested the most over the last few years are showing returns on that in terms of top line momentum and bottom line progress, and that gives us a good sense of confidence.

In the IAF business, I think we've talked about in the outlook that is reasonable, and so hopefully that gives you a sense on our view for the year. From a hiring perspective, we added about 460 people for the total company during the quarter.

As I mentioned, 375 of those people were outside the United States. So, we did continue to hire in North America, as we will, going forward. But, from a people investments standpoint, the primary areas of activity have been outside the United States, and of that total growth outside the United States at this point more of it is happening in Asia than in Europe. So, hopefully that's helpful there.

Doug, do you want to continue?

Doug Klinger

Sure, thanks. Christa, just in terms of your question, I think you asked about newspapers and also Yahoo, just a couple kind of quick stats on the quarter that we look at beyond the revenue postings stuff that we mentioned.

We see significant growth in our resume business in terms of total resumes, significant growth within our seeker accounts and even more significant growth in the agents that seekers are creating.

Important in all this is the strong growth and what we call the third party channels, which for us right now are recruitment advertising agencies and newspapers.

Specific to newspapers, we now have 27 new co-branded sites launched in the quarter, as well we launched our deal with Adicio, both for infrastructure support as well distribution.

The new partnership we signed with New York Times in February will drive launches for the Boston Globe in May and New York Times in June. So, they are not flowing through our results yet.

The growth in UV's and the markets where we have newspaper partners are up in the mid-teens, are relative to where we were before we entered in those partnerships, posting growth in markets like Philadelphia, Orange County, St. Petersburg, Akron are all in the mid-30% range in terms of growth in posting largely at the expense of some of our rather key online competitors.

Growth in new resumes in our newspapers markets, where we are co-branded and partnered is double-digits higher than in the core business.

I think an important thing for us to look at and this should start flowing results as we move to the year is the vast majority of newspaper-related sales convert to revenue immediately because they tend to be smaller transactions or single transactions.

The number of new customers that we have is more than doubled in the newspaper markets versus what we were experiencing before, and our spend rate with those customers is significantly higher as well.

In addition, to kind of the results that we've had to date, we have a very significant pipeline that we are working, there are still very many uncommitted papers, and significant groups of papers, particularly in small and mid-sized markets, many of which are already performing while force in the existing partnerships.

Once The New York Times papers are up and running, we will have a very significant percentage of U.S. daily paper circulation. You asked about hot jobs, I am not an expert on hot jobs business. I think they've done a nice job of entering into partnerships, as we look at those deals having participated in the sales process with many of the folks they’ve signed as customers. Most of those deals are distribution deals only, as oppose to full co-branded integrated partnerships, as we've pursued. In a distribution deal, the sales people in the newspaper simply up-sell a print ad into a posting.

So, l think much less sticky, much less opportunity to drive resume sales, monetization of the site, all the other kinds of things and much less opportunity to frankly get the marketing benefit, that we are starting to experience in terms of consumer reach.

I think importantly McClatchy announced they were going to do some stuff with Yahoo. I am not sure everyone, who follows our industry read that announcement closely, but I am sure all of you know McClatchy is part of CareerBuilders, so the deal they sign with Yahoo does not pertain to jobs.

And I think it represents a significant shift in Yahoo strategy of being willing to offer searching content without the job attached. And that frankly has been a key component of the pitch we've made to a lot of the partners we have secured as, hey if you are going to pick a partner to work within the career space why not pick the market leader. And that's the strategy we will continue to peruse.

Christa Quarles - Thomas Weisel Partners

Okay. Thank you.

Operator

Your next question comes from the line of Jeetil Patel.

Jeetil Patel - Deutsche Bank

Couple of questions guys. Can you talk about just the trends overall thus far in Q2 and how things are progressing? Second, it looks like it’s more of the IAF business that seems to be underperforming far more than the US Career site. I guess, how fast do you think you can recoup the revenues if you have the inventory and you are not able to sell out of the leading site. Are you able to make a pretty successful pitch to go after the display dollars out there? How much really do you get from the international side of the ad equation starting to contribute as you progress through the year?

Lanny Baker

On the month of April the trends that we have seen, have been consistent with what we saw in the first quarter and what's included in our outlook. So, there is not a whole lot of new different information for the month of April. Mark, do you want to talk about it?

Mark Stoever

Yeah Jeetil, it’s Mark Stoever. So, if you think about the Q1 performance in IAF, as Lanny said, we were expecting a little bit more, although all of the trends are still keeping us pretty bullish on the opportunities.

Let me just clarify a little bit about what's driving the revenue decline in Q1 to give you some visibility as to why we think it's something that overtime continues to be the right investments. Primarily the IAF business today is focused on lead-gen in display.

And both are quite different, in fact lead-gen is about 50% of the business right now, and we're performing quite well to the tune of pretty much on certain site selling out of all of the lead-gen inventory. So, for that business it’s about continuing to invest in marketing and product and expansion to drive more traffic to those lead forms.

We've got currently more demand from our existing client list than we are serving. So, with the investments being made, we’ll free up some more inventories as we move forward. On the display side, it's a bit different.

Display, as you know we've been continuing to ramp sales force execution, investing sales training and really have only been added for about three quarters. And in that business although as Lanny said, it's only about 25%, we're seeing that grow faster than the market. In fact we grew close to 37% in Q1 on the Display business and continue to make good performance against the national advertisers.

So, we are feeling pretty healthy about that side of the business. And in general, both feel like they are still on the track to return to some healthy growth, both on the top line and bottom line.

And lastly, as we've said in previous calls, we haven’t really tapped the international opportunity for advertising at all, and in fact we've just started to plant the seed this quarter in Europe. So what we would expect to see is some good healthy growth over the next couple of quarters in both lead generation and display advertising.

Jeetil Patel - Deutsche Bank

From a yield standpoint on the ad side, can you talk about I guess what has a higher yield, the lead-gen side or the display side?

Mark Stoever

They are not all that different. At the end of the day this is advertising. I think that certainly for those of you who are comfortable with lead generation know that, the more quality the user is the higher the lead price. So, we're getting some nice prices on the lead because our traffic is of varied quality, certainly on sites like FastWeb and in military advantage on the Monster site. These are some of the highest quality leads in the industry, so that's working well.

But on the Display side, we've made great performance in growing that CPM as well. In fact our CPM’s now for brand display, if I think about the last three or four quarters have improved 80% to 90%. So we're going in the right direction.

Jeetil Patel - Deutsche Bank

Thank you.

Operator

Your next question comes from the line of Mark Mahaney with Citigroup.

Mark Mahaney - Citigroup

Thank you very much, two questions. First, just comments on share buybacks; you obviously have non-accessibly but obviously a very large amount of cash. It's odd that you didn't buyback shares during the March quarter. Are there restrictions related perhaps to the stock options investigation that make you want to delay for a little longer?

And then second, Sal can you give us a sense of the timing of maybe the strategy review that you're undergoing? You’d said earlier you can't say whether you will need to refine or change the strategy going forward. Does that mean that for the next quarter you want to review and then make that decision in the quarter or is that just a general open-ended statement about the next year or two? Thank you very much.

Sal Iannuzzi

Okay, thank you Mark. Well, the first answer to your first question is. There is nothing that's restricting us in terms of the stock buyback at this point. What we're doing and there has been a lot of discussions both with the senior management team once again and the Board that we want to really take a hard look at what we need to do to grow the business once again for the long-term.

And before we use our capital and the dollars that we do have is to make that assessment see where those investments need to be made, and then we'll make the decision, as to the best utilization possible.

So, we just want to take some time and this stuff tells obviously into your second question. Probably over the next 60 to 90 days, maybe a little bit longer than that, I am getting to know this company as well as I possibly can.

My days are spent literally talking to people. And they have been here, they know the business, they have been quite successful with that obviously. And they are going teach me, and then I am going to hopefully add to that with the things that I have learned during my career.

And that will come out to what we need to do both short-term and for the longer run in terms of strategy. But in terms of the strategy, I don't think that it will ever be, I certainly hope not, a stake put into the ground that says, this is our strategy and that’s it, let’s march.

I think it's an evolving thing, I think we have to be flexible, I think we have to condition ourselves to what we see going on in the world and the opportunities that present themselves. So, I think certainly, I have a catch-up and learn in the short term, see what we need to do in let’s say the next 12 months and then stay very focused with the intent that we are up high to make sure that we adjust as the world evolves and situations or opportunities presents themselves to us.

So, that's generally, what I'm thinking right now, and as I’ve said a couple of times, I think that’s certainly why the Board and the management team that's here and some of it that's not here, they’re up at Maynard this morning, seem to share this direction.

Mark Mahaney - Citigroup

Great, thank you Sal.

Sal Iannuzzi

Sure, thank you.

Operator

Your next question comes from the line of T.C. Robillard with Bank of America Securities.

T.C. Robillard - Bank of America Securities

Great, thank you. Lanny, can you just clarify; I want to make sure I heard you right on the full year guidance. Does that include or exclude the $9.8 million in legal fees for the first quarter?

Lanny Baker

Certainly we have an outlook that’s consistent across the course of the year. And because we can't predict, we don't believe with any degree of certainty regarding these legal fees. The legal fees incurred in the first quarter and any cost related with the option matter that will be incurred last year are excluded in the expense outlook range.

T.C. Robillard - Bank of America Securities

Okay, great. Thank you. And can you just give us the sense, as to what changed over the past kind of three or four weeks with respect to the guidance to no end. And in your pre-announcement on the 4th, you had reiterated the guidance and now obviously some tightening. And not a huge shift, but is this a situation more on the investment side, have you seen anything different on the demand side? Just trying to get a little clarity of what you guys have seen over the last month?

Sal Iannuzzi

T.C. I'd like to take this one for a moment and then obviously anyone else in the room can try then. There is nothing fundamentally that's changed in the past several weeks. I think that, if you look at the numbers and you look at the ability of the company to have maintained its guidance, it could have very easily done that by just reducing some of the spending in certain areas. But there was a plan put in place that was well thought of, there was a lot of thinking behind it.

I spent some time looking at it, and I think that where we are is that some of the reductions that would have occurred in order to make that number were such that, it would have really cut a short in certain areas for the future. And I think the consensus of everyone and certainly the mandate or the direction I have from the Board and the discussions I had leading up to my taking role.

I am very happy to report the discussions I've had with the senior management team has been such that, rather than try to be heroes and deliver an extra nickel for the year or an extra dime for the year. And key to that guidance is to really say, the business itself and its hard for me to even say this is Short a little bit, and I mean a little bit.

In fact what our plan was in terms of investing and positioning ourselves, as best as we possibly can for the future. So, that's really the model or the decision tree, which went on over the past several weeks. We had a lot of conversations, some fairly late into the evening leading up to that, and I think everybody is joining hands and believe this is the right thing to do this morning.

T.C. Robillard - Bank of America Securities

Okay, great, thanks Sal. That was very helpful.

Sal Iannuzzi

Thank you.

Operator

Ladies and gentlemen, I apologize for the inconvenience, but due to time constrains please limit yourself to one question per person. Your next question comes from the line of Imran Khan with J.P. Morgan.

Imran Khan - JP Morgan

Yes, hi. Thank you very much for taking my question and congratulations Sal on your new role. A question is, in terms of the U.S. business, it seems like the enterprise business is pretty strong and the weakness is in the small businesses. So, can you give us some metrics or some kind of color, how should I think about what percentage of your U.S. business is enterprise business? And what kind of growth rate is U.S. enterprise businesses experiencing comparing to the small business? Thank you.

Lanny Baker

Imran, we are going into too much detail on it. I think the enterprise category typically includes about 3000 companies that employed more than 2000 people. There was a stage in Monster's development several years ago, where that might have been the preponderance of our business.

As we build up the telesales business and we've grown the eCommerce channel, the enterprise element within North America has come down. At this point the business is reasonably well balanced between enterprise, mid-size and small client bases. And so from a trend perspective, the enterprise customers continue to grow at stronger rate today and the smaller customers that we've talked about for a while now, we've seen some attenuation of our growth in that category.

Imran Khan - JP Morgan

Okay. Thanks.

Operator

Next question comes from the line of John Janedis with Wachovia.

John Janedis - Wachovia

Hi, thank you. Doug, I'm not sure if this one is for you, but I think you may have lowered posting prices from the original '07 rate card a few weeks back by something around $25 or so for a single posting. And I'm wondering if that was in response to that change in the main environment and have you seen any kind of uptick as a result? Thanks.

Doug Klinger

Yeah, this is Doug Klinger. With respect to our eCommerce channel which I think you're referencing, one of the main drivers of our slight miss in Q1 was growth flattening in that eCommerce channel.

And I think there is really three drivers of that based on our past success in that business, one is price obviously.

These are price-sensitive buyers and tend to be leading edge of the economy. One is marketing, how much we are promoting that offer and then one is obviously the economy. So, we can't do much about the economy, but we can certainly take actions in terms of the things we do control.

With respect to eCommerce, our visitors are strong, but our conversion rate declined somewhat and that flows through in the revenue. So, we see a more tentative small buyer at sort of lower end to the SMB space.

And what we're doing is trying price points that work effectively last year. We did put some price increases in for Q1 that we think were higher than appropriate in some of our top tier markets.

So, what you say was effectively a roll-back to try to increase demand and move that lever. The other thing we did which is very important, and it's a significant change is; we began promoting in the last several weeks, the lowest price for a single job posting on the web. Telling customers that if you want the lowest price out there, you need to come to our eCommerce channel, we are not going to deliver that lower price any longer through our telesales channel.

This should have the effect of moving low-yielding labor intensive accounts out of our higher cost channel. And onto the eCommerce channel, we hope to see that flow through results as we go through the year.

John Janedis - Wachovia

Thanks. I'm sorry, just quick follow-up. Just in terms of you trying to increase that demand on the rollback, have you seen that yet or you're still far away?

Doug Klinger

It's too early to tell, I mean obviously we track these things daily, but price is one lever and we'll have more to say as we get into the neat of Q2.

John Janedis - Wachovia

Thank you.

Operator

Your next question comes from the line of Tobey Sommer with SunTrust Robinson Hump.

Tobey Sommer - SunTrust Robinson Humphrey

Thank you, SunTrust Robinson Humphrey. I wanted to ask you a question about your third-party channels in newspapers. You seem to have experienced relatively more success when trying to set up deals with private newspapers, I was wondering if you could comment on that? And then, I do have one house-keeping question, if you could describe the relative mix between professional and legal fees, and whether that has shifted to favor either the legal side or the professional kind of consulting? Thanks.

Lanny Baker

Sure, Tobey. In terms of the status of our partners or the ownership structure of our partners, I don’t know if there is anything to talk about. As Doug, talked about a little bit, there is a group of publishers who are looking at their very strong local franchise and looking for the best partner for each element of that franchise. There seems to be others, who are approaching it a little bit differently. It’s been the publisher’s are looking for the strongest player in each in category, New York Times is a great example of that. A publicly traded company I would add. We have been able to emerge as the partner.

In terms of the professional fees versus legal fees, I don’t think there is any great distinction to draw there. Today, 95% of the expenses that we have are legal, and it's a little bit different. Say in the last half of last year, we had more forensic accounting type of expenses. But, I think the bulk of those fees should be going forward very much of the legal nature.

Tobey Sommer - SunTrust Robinson Hump

Thank you.

Operator

Ladies and gentlemen, this is the last question and we will be taking it from William Morison with J P Morgan Securities. Are you there?

William Morison - J. P. Morgan Securities

Two quick ones. Can you give us a sense of what is you total employee base? What percent is U.S. today and what percent is overseas? Just so we can kind of get a sense of when you might be nearing kind of parity in terms of employees to your revenues scale on those two units?

And then Lanny, given the new guidance for this year on expenses, can you just update us on your thoughts, maybe on the long-term incremental margin. I think you have said in the past 30% to 50%. Do you still believe that’s a good long-term incremental margin target?

Lanny Baker

On the employee base we are today at a point where more than 50% of the company's total employees are outside the United States. And it's important to recognize that we have areas such as the Technology Development Center in Malaysia, some customer service and calling centers in India, Technology Center in Prague that are relatively lower cost labor market.

So, although the people are located more than half outside United States, the expense basis is not quite like that. And those people, I talked about in those regions support not only those regions, but also provide a critical support to the U.S. business, kind of leveraging Monster's global footprint to the benefit of our strength and profitability.

To the question on incremental profitability, I think you've seen the model over the last two, three years been pretty consistently able to generate incremental returns in those ranges. If they go out of those ranges for one reason or another, it would be because we choose to make investments or we choose to harvest. And we'll let you know, if we are planning to do that.

William Morison - J. P. Morgan Securities

Thanks.

Operator

Thank you Mr. Morison. Mr. Jones, do you have any closing remarks?

Bob Jones

Yeah, once again, thank you for joining us this morning. To listen to a replay of this call, you can dial 800-642-1687. The ID number is 5134683. Or you can access the replay through our website under the Investor Relations section. Please feel free to call me anytime at 351-7032 or Lanny at 7005, and thank you very much.

Lanny Baker

Thank you.

Operator

This concludes today's Monster Worldwide conference call. You may now disconnect.

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Source: Monster Worldwide Q1 2007 Earnings Call Transcript
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