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Monster Worldwide, Inc. (NASDAQ:MNST)

Q3 2007 Earnings Call

October 24, 2007, 5:00 PM ET

Executives

Robert Jones - VP, IR and Corporate Communications

Sal Iannuzzi - Chairman and CEO

Tim Yates - EVP and CFO

Steve Pogorzelski - EVP, Global Sales And Customer Development

Mark Stoever - EVP, Internet Advertising & Fees

Analysts

Mark S. Mahaney - Citigroup Smith Barney

Peter P. Appert - Goldman Sachs

Imran Khan - J.P. Morgan Securities

Christa Quarles - Thomas Weisel Partners

T.C. Robillard - Bank of America

Mark Marcon - Baird

Jim Janesky - Stifel Nicolaus

Tobey Sommer - SunTrust Robinson Humphrey

Presentation

Operator

Good afternoon ladies and gentlemen, my name is Tina and I will be your conference operator today. At this time, I would like to welcome everyone to the Monster Worldwide Third Quarter 2007 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you.

I would now like to turn the conference over to Mr. Bob Jones, Vice President of Investor Relations. Please go ahead sir.

Robert Jones - Vice President, Investor Relations and Corporate Communications

Good afternoon and thank you for joining us on Monster Worldwide's third quarter 2007 conference call. Our format call for us to have formal remarks Sal Iannuzzi, 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: Steve Pogorzelski, Global Sales and Customer Development; Mark Stoever, Internet Advertising and Fees; Darko Dejanovic, Chief Information Officer; and Art O'Donnell, Customer Service.

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 litigations related to pass stock option grants, costs associated with the restructuring, and the security breach. Certain factors, including factors outside of our control, may cause the actual results to differ materially on those contained in the forward-looking statements, including economic and other conditions in the markets in which we operate, risk associated with acquisitions to dispositions, competition, seasonality and 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.

Sal Iannuzzi - Chairman and Chief Executive Officer

Thank you Bob and good afternoon everyone. Thank you for joining us for the 2007 third quarter conference call. On our second quarter conference call in late July we announced a restructuring plan designed to build on Monster's global leadership role in the industry and position the company to deliver strong revenue growth and higher profitability. The key elements of this plan include investing in product innovation, enhance technology and bring support, while streamlining our organization. While we are still in the early stages of this transition, I am pleased to say that we are making substantial progress and are on-schedule.

Our objective in implementing the plan is simple; focus on enhancing the experience for all of our customers, job seekers, users and employers, by responding to their needs and providing the industry-leading customer service. This plan is built on the core principle that we will pursue initiatives and make decisions for the long-term health of the business. We will not take shortcuts and we will work hard to enhance the value of business over the long term.

Our management team is taking a straightforward approach and is facing issues head on. A good example of our approach is the way in which we responded to the recent security breach. Earlier in the third quarter when we became aware of the illegal activity that involve the downloading of certain job seeker contact information from the company's resume database, and we understood the dimensions of the intrusion, we proactively alerted to all jobseekers within an active resume about this issue. And we informed them of pre-emptive measures they could take to protect against the online fraud. We also implemented new systems and processes to monitor site traffic, tightened site access and otherwise protect jobseeker contact information. While no site can ever be a 100% secure, we believe we have made significant progress in updating the security features on the Monster sites. Our top priority is to act in the best interest of our customers.

Monster is fortunate to be in this position where our customers have provided us with a huge opportunity to grow both the online recruitment and the internet advertising industry. We value the trust they place in us and we will not compromise the integrity of our franchise for short-term gain. Our product and services must meet our customers' needs, not only today but also into the future. We will differentiate and distinguish Monster as the premiere provider of quality job candidates around the world. We believe it is our responsibility as the global industry leader to deliver employers and jobseekers the highest quality, most innovative and useful services. We must constantly reevaluate and if necessary, reinvent ourselves to be the human resources and life-management partners. That is why, after conducting a deep review and analysis of our growth opportunities and resource allocations, we have made the significant changes we've discussed last quarter. We are focused on the task at hand, and we've also cast in a wide net as we look to Monster's potential.

Monster pioneered the online recruitment business a dozen years ago and change the way seekers search for job by being innovative and disruptive. Our leadership team has challenged our resources to look at all aspects of our business today, with an eye towards the future. The future needs of our customers, so that we are attacking these opportunities on a number of fronts with a high level of energy, enthusiasm across the organization.

The third quarter financial results are only beginning to reflect the expected benefits of those efforts. We delivered solid performance including, an 18% year-over-year increase in consolidated revenue and sequential improvement in our non-GAAP operating margins. However, we still have work ahead of us. To address the challenging U.S. recruitment markets and the consequences of our under investments in key areas.

Now I'd like to comment on the early actions we have taken to execute on some of our key initiatives during the quarter. We have made progress in stabilizing our U.S. sales force and we believe we are on the right track and improved execution and higher productivity. We've reduced voluntary turnover in the sales force and have focused our resources on new customer growth.

In the international markets, we're continuing our investments in market development which has resulted in outstanding results. International revenues rose significantly in Q3, with strong contributions from both Europe and Asia. We are intent on maintaining our superior position in key growth markets overseas. We look forward to continued strong growth and steady margin expansion in our international markets.

We are particularly excited about the opportunities ahead of us in ChinaHR, which had another strong quarter of revenue growth and is closing the market share gap with its largest competitor. We continue to see China as a tremendous growth vehicle due to its large employee base and dynamic job creation.

We are extremely pleased about partnering with BBDO as the company's global agency a record for advertising and branding. Together, we will strive to reenergize the Monster brand on a global scale and to develop a consistent strategy for advertising and promotion across all of our businesses and regions. We are pleased with our strategic growth so far and excited with our new direction. We've believe there is a huge opportunity to showcase the characteristics of the Monster brand, personalization, relevance and the concept of life improvement.

In the second half of the third quarter, we invested heavily in marketing, while at the same time realizing significant deficiencies in our spend. This strategy has provided higher visibility in mass media, particularly in high profile TV advertising. We expect this trend to continue in the fourth quarter and beyond, not only on TV but also in the online media and other

marketing channels. We are encouraged by the positive recent trends of our key indicators and job seeker reaction to our advertisings.

Product innovation and technology enhancements of critical investment areas for Monster, where we have committed for the longhaul. We are sharply focused on two areas of investment: creating the next generation of innovative products, maximizing the effectiveness and value of the Monster sites for our customers, and updating our technology infrastructure. Tim will speak with you about our third quarter progress and areas of cost efficiency. However, I want to emphasize that our goal here is not simply to reduce headcount, but also to make our organization more nimble, responsive and fast moving.

We have added proven challenge and leadership to our management team in key areas. In September, Art O'Donnell joined us to head up the all important area of customer service offerings over 35 years of quality control and customer service talent and expertise to Monster. Lise Poulos also joined last month and will be helping to coordinate and facilitate the product investment process. Human capital is our business; Lise brings a rich background in this area as well as recent success in fostering creativity and innovation in a technology-oriented environment.

We are also actively seeking to add strong talent around the world. While it's too early to declare victory, Monster is moving in the right direction and at an accelerating pace. We are pleased with early signs of our plan, however, we are concerned with the general economic picture and we will be vigilant in responding to changing market conditions. In terms of looking ahead, our outlook remains basically the same and we have timed... the revenue range for the 2007 full year. Our outlook is $1.345 billion to $1.365 billion in revenue, based on continued dramatic growth in the international markets and fourth quarter revenue growth in North America, similar to the third quarter with the potential of a slight increase.

Now, I would like to turn the conversation over to Tim. Tim?

Tim Yates - Executive Vice President and Chief Financial Officer

Thank you, Sal and good evening everybody. First I will review our income statement highlighting our non-GAAP results while pointing out the GAAP reconciliations, and then I will comment on the performance within our segments, providing an update on the restructuring plan, and finish with a brief of our balance sheet and capital allocation.

Our consolidated revenue increased 18% in the third quarter consistent with our expectations, reaching $337 million. On an organic basis, revenue increased 15%, excluding an $8 million benefit from foreign exchange rates. Within our operating segments, Careers, North America revenue grew 5% and our international business performed exceptionally well, delivering 57% revenue growth. On a non-GAAP basis, our operating expenses were $268 million and the non-GAAP operating margin expanded to 21% from 19% in the 2007 second quarter. Additionally, we slowed the overall operating expense growth rate to 21% compared to 28% and 24% in the first and second quarters of the year. The currency benefit on revenue was largely offset by the currency impact on operating expenses, approximately $6.5 million.

Interest income decreased in the third quarter due to our stock buyback transactions. Our effective tax rate ticked up slightly to 35.5, while our loss at ChinaHR was $3.1 million. The diluted share count was down almost 2% from the second quarter and essentially flat with the prior-year period. Putting the pieces together, income excluding the items we have called out was $46 million or $0.35 per diluted share. We have adopted a new format in our earnings release this quarter which we will provide on an ongoing basis. There are two additional schedules that reconcile our GAAP and non-GAAP results and they are included in the tables that accompany our earnings release.

We believe these new schedules provide a clear way to analyze the trends of our business. As a result, we are highlighting the impact of certain adjustments recorded in the third quarter that we believe are noteworthy, or may be considered one-time items. To summarize they are, $11.2 million of restructuring and other special charges, primarily related to severance charges from the reduction of employees as part of the restructuring plan. This would be a component of the $55 million to $70 million of anticipated restructuring costs. $5.7 million of costs associated with measures taken by the company in response to the security breach, much of which we do not expect to be recurring; and $2.6 million in professional fees from the ongoing investigation of the company's historic stock-option granting process.

In addition on a nine-month basis, we have also treated the previously disclosed executive severance of approximately $15.8 million as a special item. When including these costs, our GAAP operating margin was 15% and income from continuing operations was $33 million or $0.25 per diluted share.

Moving over to our segment results. The Careers International business which now accounts for 36 % of consolidated revenue continued to experience dramatic growth. Revenue grew 57%, aided by approximately $7 million of currency benefits. We continue to see strong revenue gains in large European countries, particularly in the UK, France, Germany and in Netherlands. In addition, Monster's growth outside these four major markets posted very healthy top line growth and the contribution is becoming more sizable, both to Careers International and of course to our overall results.

In Asia, we saw a strong year-over-year increases in all countries that we operate and we believe that our strategy to capture market share, while aggressively investing in the business will position Monster firmly in the region for a significant future revenue growth. While we currently account for ChinaHR on an equity basis, it is worthy to note that their revenue growth exceeded our Careers International business and grew faster than its closest competitor.

Careers International non-GAAP operating margin expanded to 11.2 compared to 10.3 in the 2007 second quarter. North American revenue came in at $175 million, a 5% increase over the prior-year period. Revenue growth rate represents a slight decline from the 7% increase in the second quarter. The combination of a more challenging domestic market for our recruitment advertising, heightened competition and the legacy of sales force coverage turnover, which occurred in the front half of the year, contributed to the deceleration this quarter. Despite the moderate revenue growth, we expanded the non-GAAP operating margin during the quarter to 33.9% from 31.3% in the second quarter of 2007. Our IAF business generated $40 million of revenue compared with $42 million in last year's third quarter.

We continued to see healthy growth in our Display Advertising business, as more brand advertisers representing a wider variety of industries utilized our sites to reach their target audience. This growth has been largely offset by a decline in our lead-generation business, partially as a result of more selective approach to placing advertisements. In addition, as you know, we made the decision to pull back certain advertising from the Monster sites earlier in the year. These combined actions contributed to producing essentially flat revenue. The non-GAAP operating margin was 11%, down from 13.1% in the second quarter of 2007.

We are closely evaluating the performance of each site in our portfolio to determine if there are sites which don't have a long-term fit in our plans, or are financially under performing. It's also worthy to note that several of our properties included in the IAF segment are achieving strong year-over-year and sequential revenue growth. For example, one of those sites is our military.com property, which is the largest military and veteran membership organization. We believe that advertising in general and the development of vertical sites represents substantial revenue and margin growth opportunities for the company.

Now, I would like to provide an update on our restructuring/reinvestment plan. As we communicated last quarter, there are a number of goals of the plan. First and perhaps most important objective is to streamline the organization, so that we can move more quickly in a rapidly changing market environment and establish a culture of execution excellence. From an organizational perspective, this is being accomplished by shifting the operating structure to a global functional organization from a series of vertical silos. In the process, we are able to eliminate duplicative functions and clarify authority and responsibility. This is a large organizational and cultural change for the company, and as Sal mentioned we are pleased with the progress we are making today.

The second major objective is to ensure that over time, an increasing percentage of our expense dollars are supporting our primary objective of enhancing the experience for all of our customers; jobseekers, users and employers. The plan contemplates, increased expenditures in new product innovation, enhancements to our current site and more productive marketing expense. During the quarter, we have accomplished a lot. We've begun a focused and disciplined investment in innovation. We have many active programs underway to enhance the relevancy and improve the usability of our sites. We have retain BBDO as our global creative advertising agency, and we have consolidated our global media buying under Mediaedge. As the year progresses, you can expect to see concrete development on all these fronts.

The third major initiative is to provide the dollars to upgrade and enhance our infrastructure which once complete, we would believe will provide greater flexibility to grow our business. An improved global platform will allow us to better service our customers as the business scales in a more cost-efficient manner. During the quarter, many of these initiatives have begun. For example, we have started the process of merging our North American and European business platforms. It's a big step forward, as the company has operated on various platforms... a number of platforms which has limited our ability to operate efficiently in the global marketplace and lengthens the time required to implement enhancements to our site.

In addition, as Sal mentioned, we have added Art to the team. An enhanced global customer service platform will be a real customer differentiator for us and represents a cost opportunity on a global basis. We have a good start on a number of these infrastructure investments, however by their nature, they will take time to fully implement. In addition, due to the need to divert a significant amount of our technological resources during the quarter to the security breach issue, we are getting of to a slower start than we anticipated. However, we expect to see an increased pace on these investments during the Q4.

When looking at the restructuring/reinvestment plan from a financial perspective, it has been designed to meet the following objectives: reduce global headcount by approximately 800 associates. Through September 30th, 365 associates have left the company as part of the plan. We are on target to identify and reduce the majority of positions by year end, with the possible exception of our customer service area, where Art is refining our thinking. Over 60% of those identified by year end are in non-customer facing areas.

Second major objective was to improve our non-GAAP operating margin to 25% by the fourth quarter of 2008 in a reasonable revenue growth scenario. We're encouraged by the sequential improvement in our non-GAAP operating margin and while the improvements will not be linear, we remain strongly committed to the objective. This objective is of course based on our current portfolio of businesses and excludes any future acquisitions the company may make.

The third major objective was to slow the growth rate of our operating expenses. As we observed last quarter, operating expenses were growing at a faster rate than revenue. As a result of putting the breaks on global hiring as well as the start of the restructuring and reinvestment plan, we have been able to slow that growth during this quarter. Prior to the restructuring, the company was on a trajectory to have 6330 associates at the end of the third quarter. Our actual headcount was 5150 at 930, and we don't believe we have missed revenue-generating opportunities. As we phase in the investments and take advantage of business and market prospects, the expense growth rate will also vary from quarter-to-quarter. As we add the necessary resources, we will balance our expense growth with the long-range opportunities we see in our objective of attaining our margin goal.

Turning to the balance sheet, our deferred revenue balance increased 25% over the prior period, reaching $435 million. The balance was down 4% sequentially, due to seasonality and also from a more conservative methodology for recognizing the contracts in deferred revenue that had renewed on... had renewed early. We ended the quarter with cash in marketable securities of $629 million. Cash generated from operating activities was $73 million and capital expenditures were $11 million. During the quarter, we fully utilized the remaining $55 million under our November 2005 stock buyback. Additionally, we also spent a $100 million onto our September 2007 authorization, repurchasing a combined total of 4.5 million shares or 3.5% of our total shares outstanding.

The Board of Directors has decided to increase our current authorization by an additional $100 million which will provide the company with $250 million remaining under the existing program. As Sal mentioned earlier, the opportunity in China is tremendous with an ownership in ChinaHR of 44.5%, and the Putco [ph] auction date approaching, we are in ongoing discussions regarding the next phase of this relationship.

I would now like to hand the call back to Sal for his closing remarks.

Sal Iannuzzi - Chairman and Chief Executive Officer

Thanks very much Tim. After 6 months as Monster's Chairman and CEO, each day I become more confident in the strength of the brand. Our loyal customer support and the quality and dedication of our global associates. In building on our strong foundation, we have a tremendous opportunity to deliver value-added services to our customers.

In closing, I'd like to thank our investors and our customers for their support, and particularly our associates. We realize and appreciate that as we build Monster for the future, many of our dedicated associates around the world are working hard and expending tremendous energies. On behalf of our executive team and the Board of Directors, I thank you and with that I would like to open up the calls for questions.

Question And Answer

Operator: [Operator Instructions]. Your first question will come from the line of Mark Mahaney with Citigroup Investments.

Mark S. Mahaney - Citigroup Smith Barney

Great, thank you. I hope you can hear me, two questions please. The first is any comments on where you think long-term International or European margins can go relative to the U.S. and then secondly, in terms of the product improvements, could you specifically talk about some of the interstitial ads that had been at times rampant on the site, and your aggressiveness or eagerness to remove those to what extent? Thank you very much.

Sal Iannuzzi - Chairman and Chief Executive Officer

First. I guess first question first. With regard to international and margins; we really, as we said in our comments, we believe our opportunity in the international markets is just beginning. We are in really the early stages of developing those markets. We have had obviously significant success but the opportunity, whether you look at India, whether you look at China, whether you look at the rest of the Pacific Rim, whether you would look into Europe and not only in the countries which we are doing very well, but in others where we haven't really even begun, we see the opportunity as really tremendous and we are in a investment mode right now. Its hard to tell exactly where the margins will fallout, but certainly we have seen some improvements this quarter and we expect to see continued improvement, as we continue to invest and see that investment turn into more revenue and absorption of more of the costs if you will that they were incurring.

But we think, overall the opportunity for us in the international market is significant, and we came away from a customer advisory meeting which ended earlier today, actually here in Mainer and one of the request from our customers was for more international support and more international help, and so we know that we are on the right track and it gives us a great deal of confidence in the direction we have taken. With regard to the pop ups, if you will, and I use that term just because I have difficulty pronouncing the other word or the other term, but when we look at the site I think we all realize that we have gotten feedback from our customers and from our associates. We really felt that may be we had gone a little bit too far and both some of the types of ads that we had on the site and also in terms of the volume, and we have made decisions to pull some of that down. It is in the short run, its cost us some revenue, it's also cost us some opportunity for revenue. But we think it's the right action to take and I think in the long run, we will not only improve and be able to engage that market on a broader scale... the advertising market on a broader scale, but will also create quite a bit of benefits from our core business.

Mark S. Mahaney - Citigroup Smith Barney

Thank you Sal.

Sal Iannuzzi - Chairman and Chief Executive Officer

Thank you.

Operator

Your next question will come from the line of Peter Appert with Goldman Sachs.

Peter P. Appert - Goldman Sachs

Thank you. Tim, I think you mentioned a little bit of, lower than anticipated, spending on some of the restructuring actions. Does that calls you to rethink the amount of savings you are looking for in the second half, which I think you've said previously was in the $50 million to $55 million range? And then, some what related, so this calls under one question to redirect; you've talked about redirecting some of the savings and increase promotion in marketing spending. I am noticing that that marketing promotion spending was actually down a little bit sequentially in third quarter and declined as percent of revenue in the third quarter. So I am wondering how that fits with your plans to spend more on marketing and promotion.

Tim Yates - Executive Vice President and Chief Financial Officer

Peter its Tim, responding to the first question. I don't think that over the long run it changes our projections in terms of the fourth quarter to the extent that we've been delayed to some what to some extent in launching some of these things while we are catching up. I don't think it in fact may cause the operating expense and the capital expenditures to be at little bit less than we otherwise might have thought.

Peter P. Appert - Goldman Sachs

Okay.

Sal Iannuzzi - Chairman and Chief Executive Officer

Well regard to your second question, I think that, what we've realized this quarter is two things; our advertising spend and maybe the better way of saying it is our advertising coverage, was expanded rather significantly, particularly in September and you will see going into the Q4, where we have been very aggressive. I think probably just taking television advertising for example, we are much more visible than we have been say earlier in the year. Why it hasn't translated into the numbers is that, at the same time as we have increased that spend and increased that volume of advertising, we have also been able to buy smarter, we have been able to execute in a better way where we saved substantial dollars. And I think you will continue to see, I think that some more benefits to be harvested, if you will, from those actions. And you will see our investment those savings being channeled back into meaningful advertising... I mean the bottom line is we want to get in front of our customers, we want to get in front of our seekers and make sure that they see us, they know we were there... that we are there, we want to make sure that we're visible. And what you see is every dollar we possibly can is focused on accomplishing that and those dollars aren't accomplishing that, we are pulling back out. So you are seeing some savings and you're seeing some spend at the same time, that's why more or less we stayed at equilibrium, or slightly below.

Peter P. Appert - Goldman Sachs

And so for the fourth quarter you look for the percent... the revenue expense on marketing promotion to be roughly flat year-to-year.

Sal Iannuzzi - Chairman and Chief Executive Officer

No I think in Q4, you will probably see advertising and marketing to stop to accelerate, somewhat.

Tim Yates - Executive Vice President and Chief Financial Officer

On an absolute dollar basis.

Sal Iannuzzi - Chairman and Chief Executive Officer

Okay. You will see there... it won't be as much as we are actually buying in terms of new advertising and investment that we'll making in that area, because we will continue to see some of the benefits of the savings. But I think net- net, if you will, you will see a some what of the uptick.

Peter P. Appert - Goldman Sachs

Okay, Thank you.

Tim Yates - Executive Vice President and Chief Financial Officer

Thank you.

Operator

: Your next question will come from line of Imran Khan with JP Morgan.

Imran Khan - J.P. Morgan Securities

Yes hi. Thank you very much for taking my questions, few questions. Sal you've talked about that fourth quarter U.S. growth rate would be similar to Q3 or may improve. Considering that your U.S. growth rates explode last couple of quarters. Are seeing any stabilization that giving you the confidence that you think that the U.S. growth rate might improve in the fourth quarter, I didn't understand that the statement. And secondly you have been very aggressive buying back shares and have you thought about doing capital restructure... capital structure because your free cash generate may de-lever up to buyback on the structured share buyback. And the third and this is the last question I promise, is in terms of the ChinaHR, obviously the revenue growth is very strong and into your excess price gives two options, how quick you can improve the margins for ChinaHR? Thank you.

Sal Iannuzzi - Chairman and Chief Executive Officer

Okay, I think what we will do is first of all we'll try and remember all three questions, so that we make sure we respond correctly. If we don't please come back to us. With regard to the first question may be I'll take a shot at it and Steve I am sure can add to it, and with regard to the second question, I will push that one to Tim and then we will go on to the third, Okay? First of all, here in the U.S. I think that we have of couple of things to play. Obviously, we have noted in the previous call, meaning last quarter that there were a number things we needed to change, a number of things that we needed to address, with regard to the U.S. market. And part of the realignment, if you will, of the executive team was to put Steve's expertise particularly in the area of sales, at work in remediating some actions that had been previously taken in North America. It is an area where none of us I think were happy with the performance we were experiencing and we needed to bring there the strongest talent we had, to fix that problem. And I think that what we were seeing is considerable a progress. It's too early and it's way too early, to say that its done, there is lot of spade work, a lot of blocking and tackling, if you will, that still has to be done. But we are seeing some real goods early signs of progress. And therefore we are comfortable saying to you that I think where we have arrived that now is, and I am going to caveat this in a moment and give some caution on this.

I think where we are now is a sort of at the bottom of the curve, and that we are starting to see those signs of improvements, that I think we are at a point of stabilization and we should be able to improve from here, that's why you see that there might be a slight improvement and I want to be cautious there, that when I say slight I mean slight, you shouldn't read that as just a hedge. But I think we will start to... we were at a point of stabilization with a potential for little bit of improvement. The issue that I... the greatest caution I have is obviously and even given in our comments, all of us realize that the economy, the macroeconomy is out there. There is a plenty of turmoil in the markets and none of us have a crystal ball on exactly what that's going to mean for us. So I think that borrowing any real strong drop beyond what we currently see ahead of us in the general economy, again we are comfortable with the estimates that we gave. If that would have steepened beyond expectation then those numbers could change. The benefit, if you will, and its kind of ironic to I call it a benefit is that, given the improvements that we are making to our system, to our methodology, the work that Steve is doing, I think that we... in a time of slump if you will, we have opportunity to build... opportunity for ourselves and gain just because of improvements we are making. So we have a bit of built-in offset just because of some of the mistakes we made in the past. Steve?

Steve Pogorzelski - Executive Vice President, Global Sales And Customer Development

I would just talk on I think three areas and first understand, we have held the account movements in the telesales channel which establishes greater stability, creating the customer continuity we use to enjoy and it enables our sales force to act in a consulted manner, that lowers telesales rep turnover which declined substantially in the quarter. We continue to focus on increasing sales force productivity, greater capacity of that sales force and leveraging a predicted segmentation model.

The investments we have made in marketing drives more seekers resumes and job response, and that in turn has increased the value proposition to our employer customers, which in turn will have a positive impact on future renewal rates. And at the same time, we're investing more on online marketing dollars to acquire more customers through our Ecom channel. The new product launches, we executed in the third quarter having a positive impact on key user-engagement metrics which drive customer sat increase renewal rates. So we're planning ambitious product launches in Q4 and Q1 as Sal have alluded to you earlier and that will further stimulate user engagement, and again increase renewal rates and give our sales force simply more to sell. So we're dressing sales force more to coverage, greater focus is being put on sales force productivity and increase marketing to the seekers.

Tim Yates - Executive Vice President and Chief Financial Officer

Imran, it's Tim, you were breaking up a little bit on your question on the buyback of the shares. But if I heard correctly, I think you are inquiring about the possibility of using a structured program of some kind?

Imran Khan - J.P. Morgan Securities

Yes, yeah.

Tim Yates - Executive Vice President and Chief Financial Officer

I think, we've obviously we've looked at the options the company have, we feel we've been able to execute quickly and efficiently at this time with the buyback we've done. We will continue to review those options. But right now we're comfortable with our tactical approach.

Sal Iannuzzi - Chairman and Chief Executive Officer

And, with regard to your third question which again you were breaking a little bit, but if I heard it right, with regards to ChinaHR and the timing of our acquisition. It's my... I think we've said it before and I think that it still holds. Probably we will end up concluding that transaction sometime in the first quarter of next year based on everything we see in front us right now. We have some upcoming negotiations over the next month, which will make those plans a little bit more definite hopefully. We are obviously looking forward to moving forward with that. In terms of the future of ChinaHR, we have a number of plans underway. We are building strength, if you will, management strength, so that we are ready and prepared to integrate that entity with our business as quickly and expeditiously as possible. So we are very happy with the prospects and we think, as I said before huge opportunity and hopefully within next three months or so, we will get that finished.

Tim Yates - Executive Vice President and Chief Financial Officer

Can we have the next question?

Operator

[Operator Instructions]. Next we will hear from the line of Christa Quarles with Thomas Weisel Partners.

Christa Quarles - Thomas Weisel Partners

I have one quick question around the verticalization of job seeking. There is a lot of competition out there and I was just wondering, is there any other investment going into tailored job seeking experiences? And then the other question was just around, you talked about some execution issues into Q2 and I was just wondering in the North American side in particular, I was just trying as you think about the MEI used to be the predictor for what the North American business would do, and in fact because you had that bifurcation there I mean will we get back to your growth looking more like the MEI growth and is there competitive equation in there in terms of you guys not going as fast as the MEI? Thanks.

Tim Yates - Executive Vice President and Chief Financial Officer

I think to first rephrase the question. The first question was on what we are going to expand in verticals?

Christa Quarles - Thomas Weisel Partners

Yes, just assuming like if I am a nurse, do I have a specific job seeking environment. That's where some out the competitors out there in the States have made some headway and I am just wondering if guys have a far around the competitive product there.

Mark Stoever - Executive Vice President, Internet Advertising & Fees

Hi Christa it's Mark Stoever. Yes, we actually do have some great thinking around the vertical space and it's similar to what we have said in the past, which is we are sort of have been recognizing that seekers are navigating the Web and looking for the next core opportunity. They are doing it in variety, in different ways, in new ways, particularly in different demographics. So you will see the youth sites, in the youth demographics searching for jobs in a very, very different way. So here we have identified some key communities. We are really open for the fact that people will need to be content in networking and we are going to look at all of those opportunities, to make sure that we are not only attracting just active seekers but we are attracting the folks who might be passive employees and we are recognizing that those folks are across the net right now.

Sal Iannuzzi - Chairman and Chief Executive Officer

Christa, just to add to that I think that what we are doing is looking not just... we are looking opportunities to organically grow sites or services, We are also... we are appropriate keeping our eyes open towards potential acquisitions, hoping that it may be beneficial and helpful to our clients. In addition to that, this is an area where we see, on the advertising side, quiet a bit of opportunity. I think that in re-channeling some of our energy from what we have discussed earlier in terms of the pop up ads etcetera and move to more appropriate advertising of some of these community I think presents us with a number of fairly exciting opportunities. So that's an area that we are keenly aware of, Mark I know spends a lot of his time focused on it and so does Tim. And we'll continue to do that and hopefully in not too distant future we will be taking some actions in those areas. May be you can help with that. You had a second question that was coming to a little bit gargled. Can you repeat the question?

Christa Quarles - Thomas Weisel Partners

Yes I guess the question is when will be North America growth... I understand that there is macroeconomic challenges, but when will North America set in there or what the MEI is showing and is it execution or competition that's causing you to under perform relative to where the MEI is?

Sal Iannuzzi - Chairman and Chief Executive Officer

Go ahead, Steve. Its yours.

Steve Pogorzelski - Executive Vice President, Global Sales And Customer Development

I think first of all, the MEI is based on job postings across a thousands sites, which include a number of free and very low cost sites. So its becoming less of proxy of revenue or future revenue growth as those sites will proliferate and start to queue the data. At the same time we continue to be focused on executing better and attacking the marketplaces with the renewed vigor through our product marketing and sales force coverage to grow faster the MEI, and I would also suggest that as we continue to move into an environment that maybe moderating from an economic standpoint, we still have acute skill shortages and other aspects of our business continue to grow, things like resumes and applicant tracking system in diversity products, which will make us less dependent or less of a correlation to the MEI, in future quarters.

Christa Quarles - Thomas Weisel Partners

Okay, thanks.

Operator

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

T.C. Robillard - Bank of America

Good afternoon. May apologies... I apologize if you've already answered this question. But the buyback, do you have any material restrictions on that buyback other than just normal volume-based restriction on shares that trade and then tagged into that, can you give us a sense if you have already the optimal kind of cash level, you feel you need to run the business?

Tim Yates - Executive Vice President and Chief Financial Officer

We are not aware of any restrictions other than the regular, limitations in terms optimal cash to run the business from a working capital perspective, I don't think we need a lot of cash and the company has some debt capacity as well.

T.C. Robillard - Bank of America

And would you be willing to take on that side from any type of acquisition. Would be willing to do that in terms an optimal capital structure and returning capital to shareholders, whether in terms of dividend or additional buybacks?

Tim Yates - Executive Vice President and Chief Financial Officer

I think in theory, yes. We are early in our... at least for me, personally in our review of all the opportunities that the company might face. We are aggressively perusing the buyback we have done. There are some calls on capital, as you see from ChinaHR. But at the end of reasonably short period of time, I think when we have our collective minds around what things might make sense in addition to what we see on horizon for acquisitions, in theory I think Company has a prudent level of debt capacity.

Sal Iannuzzi - Chairman and Chief Executive Officer

Yes, I think that we obviously have the debt capacity as to mention. We have obviously more than an ample of amount of cash on hand, even assuming that we had execute 100% on the approved buyback programs, that's in place now. I think that we want to move... I think we are moving aggressively but cautiously at the same time because, we don't know whether other opportunities present themselves, whether they be in Mark's area in IAF or there is opportunities beyond ChinaHR in other marketplaces internationally, perhaps even domestically. So part of the exercise is to move aggressively that will somewhat be dictated on where the stock price is and how attractive we think it is at certain pricing, and also by the opportunities that present themselves out there. But we don't want to jump; we want to make sure that we keep some of our product drive opportunities that may be out there.

T.C. Robillard - Bank of America

Understood, thanks for the color, Sal.

Sal Iannuzzi - Chairman and Chief Executive Officer

Thank you.

Operator

Your next question will come from the line of Mark Marcon with RW Baird.

Mark Marcon - Baird

Good afternoon. With regards to the North America, can you give us a little more color with regards to what you are seeing on the enterprise side, relative to the smaller medium business side and what you are seeing on the Ecom channel and how that's progressing? And finally, back in the summer there was an announcement from Monster about a change in the pricing structure. I was just wondering if you could update us in terms of that being rolled out or how we should think about that.

Steve Pogorzelski - Executive Vice President, Global Sales And Customer Development

Mark, it's Steve. From an enterprise and the SMB growth standpoint in North America, they are really on similar tracks from a growth standpoints, I think one of the important things to notice is that the terrific growth we are gaining in International has driven a large part by our enterprise sales force working with U.S. multinationals. We're hiring at greater rates outside United States and they are in... within the U.S. Ecom revenue performance in North America was flat in the third quarter, which really was an improvement over the negative growth rate in the second quarter, in the short-term as I said earlier, we are investing more in that channel in the fourth quarter to stimulate growth and we have also plans in the longer term to rollout a next-generation products that will create a better buying environment and a user environment for our customers in North America along the lines of the Ecom.

Mark Marcon - Baird

Is that next-gen product, Steve the announcement that we got in the summer, in terms of the different... the more flexible packaging for posting?

Steve Pogorzelski - Executive Vice President, Global Sales And Customer Development

The flexible posting packages and what you allude to pricing pieces really change in the product model in which we offer durations... different durations of jobs and other ways to sell jobs to customers to give them greater flexibility and it's really days in terms of launch of the product but from a sales force standpoint we feel that the products has really, put us in a much better competitive position particularly being customers with smaller needs, generated revenue from the product in the third quarter and we... I think it will continue to help us in this environment on an ongoing basis.

Mark Marcon - Baird

Great. Thank you.

Operator

Your next question will come from the line of Jim Janesky of Stifel Nicolaus.

Jim Janesky - Stifel Nicolaus

Yes. Thank you.

Operator

Sir, we cannot hear you?

Jim Janesky - Stifel Nicolaus

Now can you hear me?

Sal Iannuzzi - Chairman and Chief Executive Officer

Yes we can.

Jim Janesky - Stifel Nicolaus

Okay. Thank you. I think it might be a little bit early but as you go into the fourth quarter and are looking at customers with the large...your enterprise customers are looking at renewing contracts for 2008, what type of read are you getting for them in terms of their appetite to either renew at higher job order categories, or are they a bit more cautious as they approach the end of the year?

Sal Iannuzzi - Chairman and Chief Executive Officer

I think what we are seeing in its early days, as we begin to build our pipelines and get visibility to those deals is that, we are seeing a bit of moderation in growth, particularly domestically in terms of enterprise hiring, but at the same time as I alluded to earlier to Mark's question, U.S. multinationals part from at least the demand standpoint with Monster, are expending in greater rates overseas. So we are continuing to reflect the general moderation in the challenging labor market in United States, while at the same time using that sales force and our entrenched customer base to help build other international operation where hiring seems to be a bit more robust, right now.

Jim Janesky - Stifel Nicolaus

Areyou hearing any caution from the multinational front as you are in the U.S. They are still growing, where the growth rate sequentially was similar to the second quarter. So I would imagine that at least right now the signs are all pretty strong, right?

Sal Iannuzzi - Chairman and Chief Executive Officer

Well I am not making a commentary towards about what an international growth rate would be in the fourth quarter I think I just would suggest that this point of time the slowness in the U.S. economy is not materializing in the international markets. We believe the global economy is more resisting... resilient to U.S. let down turns in the previous economic cycles. We are being vigilant and looking at it and right now we have been remain positive about our ability to utilize our enterprise sales force to leverage multinational growth through out the world.

Unidentified Company Representative

Yes operator, we have time for one more question.

Operator

Thank you, sir. And your final question will come from the line of Tobey Sommer with SunTrust.

Tobey Sommer - SunTrust Robinson Humphrey

Thank you, I was wondering if you could elaborate a little bit on ChinaHR. something you already touched on. What was the potential impact that would have on the margin given the fact it was fairly close to being able to exercise your option there. Thank you.

Tim Yates - Executive Vice President and Chief Financial Officer

Well its a growth market. It's a business where we do need to spend money on to capitalize on the market position that ChinaHR has. That having been said, at the moment, we are not close enough to quantify that precisely for you, but we are committed to the market and we are also committed to expanding to take the maximum advantage, particularly in next years Olympics. So we are a little too early to quantify the precise number for you.

Sal Iannuzzi - Chairman and Chief Executive Officer

One thing that we are not... that we certainly will not do, ChinaHR is very valuable asset to us. And it is a valuable asset because we really truly believe, the entire management team here believes, and the Board that it really offers a tremendous potential for the future. So irrespective of what might be a temporary margin impact. And I am not suggesting that there is going to be a margin impact on an appreciable level. But whatever its going to be, we are going to whatever we need to do to make sure that we take advantage of that opportunity, the benefit of the opportunity that we have and execute on it as boldly as we can. We know that its going to be quiet some degree of investment. Part of the benefit of the restructuring it that it gives us within the context of margin we have toady. Some of the fire power that we need to make that investment. And if we need to go beyond that, we will but it's really a little bit too early in the game, to be able to define that in any meaningful way. We would be simply just be guessing. Did I answered your question?

Tobey Sommer - SunTrust Robinson Humphrey

It does. thank you very much.

Sal Iannuzzi - Chairman and Chief Executive Officer

Thank you.

Operator

At this time,I would like to turn the call back over to Mr. Jones for any closing remarks.

Robert Jones - Vice President, Investor Relations and Corporate Communications

Yes. Onceagain, we'd like to thank you for joining us this afternoon. If you would like, you can access a replay of this call through our website under Investor Relations. Also, please feel free to call me at anytime, at 212-351-7032 if any further questions. Thank you.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may all disconnect.

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Source: Monster Worldwide, Inc. Q3 2007 Earnings Call Transcript
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