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Executives

Matt Sonefeldt - Senior Manager, IR

Jeff Weiner - Chairman, CEO & President

Steve Sordello - SVP & CFO

Analysts

Herman Leung - Susquehanna

Heath Terry - Goldman Sachs

Kerry Rice - Needham & Company

Justin Post - Merrill Lynch

Tim Mchugh - William Blair

William Bird - Lazard

Rohit Kulkarni - Citigroup

Mark May - Barclays

Craig Huber - Huber Research Partners

LinkedIn Corporation (LNKD) Q1 2012 Earnings Call May 3, 2012 5:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the LinkedIn first quarter 2012 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, this conference call maybe recorded.

I would now like to hand the conference over to Mr. Matt Sonefeldt, Senior Manager for Investor Relations. Sir, you may begin.

Matt Sonefeldt

Good afternoon. Welcome to LinkedIn's first quarter of 2012 earnings call. Joining me today to discuss our results are CEO, Jeff Weiner and CFO, Steve Sordello. Before we begin, I would like to take this opportunity to remind you that during the course of this conference call, management will make forward-looking statements which are subject to various risks and uncertainties.

These include statements related to the expected number of growth and engagement, the expected number of searches by our members, our product offerings, the macroeconomic climate, potential impact of acquisitions on our business, the results of our research and development efforts, including the acceleration of our product deployment process, which is revenue, including revenue growth rate, adjusted EBITDA, depreciation and amortization, and stock-based compensation, share dilution, taxes, as well as sales channel mix and hiring plans, R&D expense and expectations for certain markets in the first quarter.

Actual results may differ materially from the results predicted and the reported results should not be considered as an indication of future performance. A discussion of risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission, in particular, the section titled 'Risk Factors' in our quarterly and annual reports, and we refer you to these filings.

Also, I would like to remind you that during the course of this conference call we may discuss some non-GAAP measures in talking about the company's performance. Reconciliations to the mostly directly comparable GAAP financial measures are provided in the tables in the press release. This conference call is also being broadcast on the internet and is available through the Investor Relations section of the LinkedIn website. With that, I'll turn the call over to Jeff.

Jeff Weiner

Thank you Matt and welcome to today's conference call. I'll start by summarizing the operating results for the first quarter and I will recap some of the highlights and key milestones since our last call. I will then turn it over to Steve for a more detailed look at the numbers and outlook. The first quarter of 2012 was a solid one building on the company's momentum in 2011. We saw strength across all of our key metrics from member signups to platform engagement, introduce several new and updated products for our members and customers and build significant growth across all three of our revenue streams. For Q1 overall revenues grew 101% to a record $188 million marking the seven straight quarter in which our revenues have at least doubled over the prior year.

We delivered adjusted EBITDA of $38 million translating to non-GAAP EPS of $0.15. Cumulative membership grew 58% year-over-year to $161 million members at the end of the first quarter as we continue to add approximately 2 member signups per second. Of the more than 15 million new members added during Q1 two thirds came from outside the United States underscoring LinkedIn's global reach.

Today 61% of LinkedIn members are now from international markets with some of our fastest growth coming from Latin America, Asia-Pacific and Southern Europe. With regard to engagement in Q1 comScore showed unique visitors growth of 37% to an average of 102.5 million reaching 107 million in March. We now rank as the 31st most visited web property globally and 28th in the United States. Additionally comScore measured page view grew 33% to over 9.4 billion.

Our internal engagement metrics which include mobile also maintained momentum with unique visiting members up approximately 50%. And internal member page views increased approximately 60% in excess of our overall membership growth, a sign of healthy member engagement. As a result of new improvements in our underlying technology architecture, 2012 will be a year of accelerated product innovation at LinkedIn built around themes of simplify, grow and everyday. Simplify is all about making it easier for our members to get more value out of core products and services we already offer. We said in February that we would refresh many of our pillar products this year. In March, we introduced a new version of People You May Know.

PYMK as we call it internally, helps professionals grow their networks by delivering personalized and relevant suggestions of other people to connect with. The new PYMK offers a much more visual and streamlined user experience and even though it just ramped up to 100% of members in mid-April we are already seeing network engagement hitting all-time highest as well as record levels of member to member invitation sent.

This increase in invitations leads to growing connection density which improves the overall member experience by increasing the amount of content available to our members. Since our last call we also simplified and improved our search experience specifically people search and groups search. While it is still early we have seen an uptick in both number of searches and actions taken from those search results. LinkedIn is now on a runway of 5.3 billion professionally oriented searches in 2012 further cementing our position as a definitive professional search engine.

Our second theme is grow, which has connotations for us. First it is continuing to grow our global membership and second it is growing our monetization footprint and ways to benefit both members and customers. With regard to member growth product localization continued to be a strong driver. In Q1 we added Czech and Dutch to our growing list of local languages and on April 2 we launched in Polish bringing our total number of languages to 17 with more planned for later this year. Localization is also important as we extend our monetization efforts.

Since our last call we opened offices in Madrid and Hong Kong giving us a presence in 25 cities around the world. Also regard to monetization in January we began testing talent pipeline which enables recruiters to manage, track and stay in touch with active and passive candidates regardless of source.

Feedback on the product from chartered customers including PepsiCo, Pfizer, Red Hat, Netflix, and First Citizens Bank has been extremely positive with some calling Talent Pipeline a game changer. In April, we began rolling out the product to all of our recruiter customers. We also made strides in helping brands attract and engage with professionals in a social context by taking advantage of the growing LinkedIn Follower ecosystem. Today, LinkedIn has more than two million active company pages.

In February, we introduced the Follow Company button, which makes it easy for these organizations to enable anyone on the web to follow them on LinkedIn. In April, we began the rollout of Targeted Updates and Follower Statistics to more than 50 early release customers, including Microsoft, AT&T, Starbucks and L'Oreal. Lastly, we said that we are going to deliver value to our members every day. Mobile products are essential to this effort, allowing professionals to tap into their networks wherever they are.

In the last week of March 22% of unique visiting numbers came from mobile devices, up from 8% in March of last year. Mobile continues to be our fastest growing service. Beyond smartphones, last week we were very excited to announce our first app designed for the iPad. The app is the LinkedIn experience we imagined for the tablet, giving professionals access to the most relevant business intelligence everyday and helping them work smarter wherever they are.

In addition, to tools like calendar integration, the app provides a visual news browsing experience of LinkedIn Today, tailor made for the iPad. The launch of the app has been extremely well received so far. Also on mobile, we are in early stages of testing various forms of mobile monetization. Our goal is to create a broad based strategy that touches all three of our business segments. Hiring, marketing and subscriptions, while adding value for both numbers and customers. In addition to mobile, LinkedIn continues to invest in new ways to provide our services to members everywhere they work. More than 400,000 unique publishers are now using a LinkedIn share button. That's up nearly 100,000 since early February.

Also, more than 60,000 third-party developers now use our APIs to build innovative services beyond our platform, up from 50,000 in February furthering our ability to power the professional way. Lastly on everyday this afternoon we were excited to announce the acquisition of SlideShare a leading professional content sharing community.

Users have uploaded more than 9 million presentations to SlideShare and the platform had nearly 29 million monthly unique visitors in March. Presentations are one of the main ways in which professionals capture and share their experiences and knowledge. Through its platform SlideShare has built a global network of presentations embedded throughout the web. Today nearly 1.5 million unique domains have at least SlideShare presentation embedded.

These sharing sites help professionals discover new connections and become more productive and successful aligning perfectly with LinkedIn's mission and helping us deliver even more value for our members. Creating products that are members love allows us to deliver useful offerings to customers of our hiring solutions, marketing solutions and premium subscriptions products.

And in Q1 these three diverse revenue streams all performed well. Hiring Solutions grew 121% to $103 million. Marketing Solutions was up 73% to $48 million and Premium Subscriptions increased 91% to $38 million. Industry leaders continue to turn to LinkedIn to engage perspective talents for their organizations and reach the right business audiences.

Key new Hiring Solutions customers include Union Pacific in the US, Banco Santander the largest bank in the Eurozone and leading organizations in the Asia-Pacific region including Reliance Industries in India, Nestle Australia and HTC in Taiwan. In marketing solutions we again saw larger brands such as Citi, Samsung and Statoil beginning campaigns with. Lastly an update on our talent which is our top operating priority. We added 331 new employees in Q1 with ongoing investments in our team planned for the remainder of 2012.

Despite our rapid expansion our team continues to manifest the same culture, values and focus on our long-term vision wherever we work around the world. And now I will turn it over to Steve for a deeper dive into our operating metrics and financials.

Steve Sordello

Thanks Jeff. Before I discuss the results I want to remind you that my comments on growth rates will refer to year-over-year changes unless I indicate otherwise. Also non-GAAP financial measures exclude stock-based compensation expenses; amortization of intangibles and the tax impact of these adjustment. Please refer to our press release for the GAAP to non-GAAP reconciliations.

We began 2012 with a strong first quarter as we saw continued momentum across our key operating and financial metrics. Turning first to our member. Jeff mentioned that we crossed 160 million members in the first quarter, growth of 58% year on year. We remain pleased by engagement on the site. comScore unique visitors averaged 102.5 million, an increase of 37% versus last year and page views increased to 9.4 billion, up 33%. As with last quarter, I will spend a moment discussing metrics we track internally in addition to comScore's data.

When excluding guest visitors, unique members visiting the site grew approximately 50% and member page views grew approximately 60% year-on-year. The PYMK update in mid April is having a positive impact on page view growth and despite the more difficult comps we are entering the second quarter with solid momentum. Mobile remains our fastest growing service with unique visiting members growing approximately 275% compared to the year ago quarter. Mobile units exited the quarter at 22% of total unique visiting members, up from just 8% last year.

Turning to our financial results, revenue increased by over 100% for the seventh straight quarter to $188 million. In the first quarter, Hiring Solutions crossed the $100 million milestone to $103 million, an increase of 121% over the prior year. Hiring Solutions remains our largest and fastest-growing product area and represented 54% of revenue versus 49% last year. We continue to see healthy underlying fundamentals as corporate solutions operates at larger scale. Sales force productivity remains strong as the magic number which represents payback on prior quarter’s sales and marketing expense was consistent with the fourth quarter despite the higher levels of investment.

The hunting side in the sales force continues to add customers at a solid pace and we ended the quarter with over 10,400 enterprise accounts under contract, up nearly 120% from a year ago. With existing customers dollar churn remained stable versus the last few quarters. The renewal add-on rate remains solid but as expected moderated somewhat from extremely high levels of 2011. During the quarter, jobs on LinkedIn continue to surpass our own expectations, signaling LinkedIn’s increasing importance to our customers across all the prudent channels.

Hiring related subscriptions also showed sustained momentum growing nearly 190% versus last year. Marketing solutions revenues grew 73% year-on-year to $48 million, representing 26% of total revenue compared to 30% in the year-ago quarter. Field sales performance exceeded our initial plans on improved execution despite premium display ad sales being impacted by the European macro environment.

Displaced (inaudible) were flat year-on-year and pricing remains above industry average. Our software platform LinkedIn had continued to outpace over our marketing solutions revenue growth with over 100% year-on-year growth. We remain encouraged by increases in both the click-through rate and CPCs versus last year.

And premium subscription revenues accelerated for the past three quarters to $38 million, 91% year-on-year growth. When we look at total subs inclusive of Hiring Solutions we saw greater than 100% growth for the fourth straight quarter with revenues growing 111%. We continue to leverage our internal data to help identify prospects with the greatest propensity to benefit from higher value added products. And as result, total premium subscribers on LinkedIn grew more than double the rate of LinkedIn’s total member base. We also begin rolling out our sales navigator product, which was still nascent and seen early traction.

Turning to channel mix, the business remains well balance in terms of distribution, with both field and online channels growing in at just 100% compared with the year ago quarter. The mix is similar to the first quarter of last year with field and online at 40%, 54% and 46% of sales respectively.

For the third straight quarter, online revenue growth outpaced field sales on the strength of our self-service subscription products. In terms of geography, our global sales office expansion strategy has driven positive traction outside the US as international regions gradually become a larger part of the overall mix. And now represent 36% of revenue up from 31% last year. We’ve broken our revenue by region for the first time this quarter and these markets are always going strong growth.

Turning to the non-GAAP P&L, growth margin excluding depreciation and amortization continues to show leverage. In the quarter growth margins were 87%, up from 82% last year. We continue to benefit from greater revenue scale passing sales tax due to customers in our new local payment platform.

As expected, sales and marketing increased to 33% of revenue from 30% last year. This reflects the investment in building at our global sale force. Approximately, two thirds of new employees in the first quarter when sale are marketing and of those hires, approximately 60% were international.

Investment in engineering and product development are in the top priority. R&D was 22% of revenue, down from 25% last year as we benefited from higher revenue base and G&A as a percent of revenue was 12% compared to 13% in a year ago quarter. Strong top line performance and better than expected online contributions of record adjusted EBITDA of $38 million at 20% margin. This compares favorably to $30 million and 14% margin last year. Depreciation and amortization was $15 million and stock-based compensation totaled $13 million. Other income was $200,000 and recently we launched a new hedging program that successfully neutralized what had been a $1.4 million impact.

Taxes totaled $5.8 million on a GAAP basis and effective rate of 54%. On a non-GAAP basis taxes was 7.8 million at 32% effective tax rate. We generated $5 million in GAAP net income compared to $2.1 million last year, translating into EPS share of $0.4 on $111 million fully integrated weighted shares. Non-GAAP net income was a record high $17 million, nearly three times higher than last year. This resulted in $0.15 of non-GAAP EPS share compared to $0.6 in the prior year.

The balance sheet remains strong with $621 million in cash and cash equivalent and short-term investment, again a zero debt, helped by record levels of cash flow. Operating cash flow more than doubled to $63 million, up from $27 million last year. CapEx was $22 million and free cash flows were $41 million, up nearly 300% from the year-ago quarter.

Before discussing guidance, I want to briefly touch on our acquisitions of SlideShare. We believe that SlideShare fits incredibly well with LinkedIn’s mission on making professionals more productive and successful. The total transaction is valued at approximately $118.75 million conclusive of retention, split between 55% stock and 45% cash. Additional details can be found in 8-K filed this afternoon.

I will close the call by sharing our guidance for the second quarter and full year 2012, which includes the expected impact of SlideShare. In the second quarter, we expect revenue between $210 million and $215 million, a range of 73% to 78% year-on-year. Our guidance takes into account the continuing momentum in Hiring Solutions. At the same time, guidance incorporates the worsening condition of the European economy as well as tough comps, especially given the strong marketing solutions performance around the IPO in the second quarter of last year.

We are increasing our full year guidance by $40 million to between $880 million and $900 million, a range of 69% to 72% year-on-year. The increased guidance range primarily reflects the strength of the core business and also includes a modest benefit from our acquisition of SlideShare.

For adjusted EBITDA, we expect a range of $42 million in the second quarter and 19% margin at the midpoint, slightly better than our original plan. EBITDA guidance incorporates expectations for another solid quarter of execution balanced by continued strong hiring, expansion of our global facilities footprint and strong fuel sales seasonality, which has a lower margin contributions in our online businesses. We are also taking up our full year EBITDA guidance to $170 million to $175 million, an increase of $10 million to $15 million from our prior range. We estimate that SlideShare will have a roughly neutral impact on adjusted EBITDA.

We expect depreciation and amortization at $18.5 million to $19.5 million this quarter and are ranging our full year outlook by $5 million to $75 million to $85 million. This increase is driven by additional amortization from our acquisition of SlideShare. For stock compensation, we expect $18 million to $19 million in the second quarter and are ranging our annual range to $80 million to $90 million due both to the acquisition as well as the impact of a higher share price on [RCUs].

Due to the non-deductibility of expenses related to the acquisition of SlideShare for Q2 and the full year, we expect GAAP taxes to roughly approximate our pretax GAAP earnings. On a non-GAAP basis, we continue to expect a tax rate in the mid-30% range.

Finally, we expect roughly $113 million fully diluted weighted shares in the second quarter and expect approximately $150 million at the end of the year.

In closing, in the first quarter we showed steady progress across our key operating financial metrics. We saw another solid quarter of member, visitor and P&G growth while revenue performance remained strong across all three product segments. Business diversity remained healthy with balanced contributions from our self served online channels and growing backlog of field sales customers.

We are optimistic for the remainder of 2012. The product roadmap is as promising as it’s ever been. We continued to increase our global presence and with the acquisition of SlideShare, we will extend the LinkedIn platform. Thank you for your time and I will now take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Herman Leung from Susquehanna.

Herman Leung - Susquehanna

Two quick questions for you. First, I guess on the seats trend additions; I know you guys added a pretty healthy Hiring Solutions. I am wondering if you can share with us how many seats that you are seeing in terms of additions and how that tracked higher going into the quarter and then second is I am wondering if you can provide us a little bit more color on how much SlideShare actually added in terms of revenues to your guidance for the year? Thanks.

Steve Sordello

So in terms of seats, in terms of new customers we were actually really pleased in the quarter, adding about 1,200, especially against the backdrop of Q4, which was very strong and our average seat per customer really stayed the same, roughly in that 3 to 4 range. In terms of the acquisition of SlideShare from a financial perspective, it’s really immaterial in terms of the change in guidance, both in terms of top line and bottom line.

Operator

Our next question comes from Heath Terry with from Goldman Sachs.

Heath Terry - Goldman Sachs

With 1,200 customers added by Hiring Solutions business, is there any trend in terms of customer mix or its whether its specific industry is that or showing the most strength or size of corporation that in anyway different from the existing customer base that you had? And just second on the mobile front with 22% of users coming in at the end of the March. I was wondering if you could give us sense of the profile of those users in terms of level of engagement relative to say your typical PC users or are they more likely to be subscribers that type of thing.

Steve Sordello

Yeah, this is Steve. In terms of the customer base, I would say that trend broadly speaking international as we focus on global expansion, pretty much near to overall monetization mix which increased to 36% of revenue from 31% last year. And then the other component is the FNB account, which currently makes about 25% of account. That’s up nicely over the course of last year as well. So shift a little bit more towards FNB filing in term of all mix, which will be expected.

Jeff Weiner

And then on the mobile front, we do see higher levels, the engagement certainly our per visit basis for both the smartphone application and newly released iPad application those folks tend to near some of the more highly engaged numbers that we seen on the website and I would expect that to hold for some of the modernization channels as well.

Operator

Thank you. Our next question comes from Kerry Rice from Needham & Company.

Kerry Rice - Needham & Company

Can you talk a little bit about the drivers in premium subscription that accelerated little bit quarter-over-quarter? And I was curious what may be we are thinking that was driving that and then one more follow up question?

Jeff Weiner

So I am going to start now and turn it over to Steve for some specific kind of model. But I think the overall strength we are seeing in the premium subscriptions platform is largely due to the investment we made there to take it from what historically was nearly one size fits all model where every number regardless of functional areas, seniority, geography etcetera was essentially seeing things creative as same author and ultimately the same product.

And so we invested in a platform that enables us to really segment to understand the value propositions to target creative leveraging our own add target capacities and systems, to get the right person at the top of the right funnel, with right author at right price point on a global basis and of course the right product and I think that made a significant difference.

Steve Sordello

I really don’t have much to add there; I think Jeff a little bit on the head. It is really leveraging that data, just it could be on a higher institution side to target our sales efforts are sitting that now to our subs model to find potential customers that will have a high potentiality to purchase the higher value added products. And with that since we really started to make that shift we’ve seen a very nice increase in terms of the conversion rate on subs and growing that to over a 100% for the last couple quarters.

Kerry Rice - Needham & Company

And then I remember you mentioned seasonality related to field sales; I wonder if you could expand and provide some more detail on that and how that differs may be between the marketing solutions and hiring solutions if there is any difference in seasonality in Q2?

Jeff Weiner

Yeah, it’s really both, probably a little bit more weighted towards marketing. The second quarter is a stronger field sales quarter on a relative basis, Q1 very strong in terms of engaging metrics traffic from a perspective of the online drivers. And so we typically see a shift in mix in the second quarter and I touched on that in the guidance section, because obviously the online revenue streams have a higher margin, a very high contribution margin so it somewhat impacts the margin profile of the company when we see that, but it’s a normal seasonal kind of change.

Operator

Thank you. Our next question comes from Justin Post from Merrill Lynch.

Justin Post - Merrill Lynch

Three questions. First on the mobile it looks like you are not seeing any deterioration of pressure on your revenues from mobile usage, how are you able to monetize that and are you worried that it could eventually pressure usage if that percentage keeps increasing?

Jeff Weiner

I think it depends on the business line. So our intention is to bring all of our business lines into the mobile environment and of course it will depend on the channel smartphone and the iPad, iPod are different in that respect.

But with regard to hiring solution it continue subscriptions we believe its going to be accretive. We can create more value by virtue of enabling our paying customers and subscribers to get access to those products and services regardless of where they are and that's a core value proposition for us. It’s a notion of enabling our members to leverage anything assets no matter where they go, where they are.

With regard to marketing solutions and add sales, I think its important to draw distinction between the iPad app that we recently launched and our smartphone applications, iPhone and Android.

With regard to the iPad I think there are going to be very natural locations and placements within our application that will nicely mere the website in terms of the plane models that we are already have.

In terms of the smartphones with less [real estate], we’re going to be testing some different ways of monetizing that from that sales perspective. So company follow ecosystem would be an area, would be instant potentially testing and relevant highly relevant adds within stream would be something we potentially test.

But as we said in the past we want to make sure we are getting those user experiences right first and foremost and I think by virtue of the significant growth we’ve seen in terms of the composition of business for LinkedIn going from roughly 8% towards the end of the first quarter of last year to 22% now on mobile it’s been a fantastic job getting that product right.

Justin Post - Merrill Lynch

And when you look at your company opportunity in LCS (inaudible) seats or number of possible customers; any change from where were a year ago; is the opportunity bigger and I guess maybe how would you phrase it were you are in that opportunity at this point?

Steve Sordello

Well, this is Steve hi, Justin. So I think it’s roughly the same the tam look out at couple ways $27 billion top down we discount that because of efficiencies we provide. I think when you think bottoms up you know it is currently about 20,000 companies in US that have more than 500 employees we estimate that’s a third of the global so 60,000 globally and on top of that you have companies that will by subscriptions. So that’s a very large opportunity with roughly 10,400 today; so that’s how we see the potential. We still feel a lot of head room in terms of being able to capture additional share in the marketplace.

Justin Post - Merrill Lynch

Maybe Jeff one more for you or Steve; what are the products are really working right now with consumers that you see an uptick in engagement or maybe what type of the pipeline you see as most important; but what is really driving consumer usage now more than anything?

Jeff Weiner

So I think for starters there is our mobile applications by far and away our fastest growing product of service and the iPad application we launched that deployed last week it offers a very strong aggressive internal adjectives for activations over the course of the week and we certainly exceeded on our internal plan and obviously still early there, but we like what we are seeing the response qualitatively in addition to the results that we seen quantitatively has been really strong very, very powerful response from our numbers.

And we just get started on that front. We have a really strong roadmap going forward. Other places on there we’re never going to see strength are; we recently announced and released the second generation of people who may know, people may know 2.0 which makes it much easier for people to find relative connections on the network.

And this is not only to put some on the friction out of the previous user interface, but the team did a tremendous job on one-on-one technology in back end so that we can do just an absolutely astonishing number of calculations behind the themes to create great relevancy in terms of those suggestions.

And the combination of the improved UI and the improved relevancy and the speed with which we can refresh those results has led to record number to number invitations which subsequently has increased connection density; the number of connections each of our members has which subsequently increases content liquidity for their experience.

So there is more to see and more to do on and as a result and that type have lifted a number of our core product boats if you will. So we keep seeing strength across the core products in that.

And then going forward the three core themes for us this year are going to be simplify, grow and everyday. With regard to simplify its going to be our pillar products in areas like the home page, profile, search experience, etcetera. With regard to growth, we continue to optimize that experience take friction out of the process and make it easier for people to join and connect and continue to localize the site in 17 languages on a global basis. And with regard to everyday, again seeing a lot of traction in mobile, very excited about the iPad launch and continue to see traction in areas like LinkedIn groups over a million groups, so we are focused on professional context, but we think that they publish our ecosystems now at the 400,000 lead domains with the ability to share compound LinkedIn in a (inaudible).

Operator

Thank you. Our next question comes from Tim Mchugh from William Blair.

Tim Mchugh - William Blair

Steve just wanted to ask what exactly was the renewal add-on rate this quarter and just remind us how that compares I guess to the last year and any more color on around what you saw?

Steve Sordello

Yeah, so the renewal, we talk more broadly on the net ratio level which is a combination of churn and add-on renewals rate. And to break those apart, churn has remained relatively stable. We did see a moderation in terms of what has been a very high level add on renewals and remains very high, but it is just a little bit in the quarter.

And I think a couple of reasons for that one first and foremost is we did have a very strong Q4 with some of the accounts that are renewed and added-on in the fourth quarter. And then secondary component is as we continue to expand more in less than [B space] those accounts have a low amount of initial upside in terms of additional bookings. So those are the two other factors.

We also had a very strong; I think we are starting to find larger deals upfront and capturing more upfront. We saw that in our ARPU this quarter which has been highest it’s been. So that's another factor I think that's kind of bringing into the results there, but the add on renewal rates remain healthy.

Tim Mchugh - William Blair

What does the mix look like now in that hiring solutions business in terms of the kind of job slots and versus the recruiter product and the subscriptions if we broke it down in terms of just percentage contribution?

Steve Sordello

Yeah the bulk of it’s still is the recruiter category which is roughly in the range of 65% to 70% and then what we've seen over the course of last few quarters is job slots recruitment media and other components continuing to build at a percentage of days; it haven't shifted that much but those components are increasing as you know, we also just released current pipeline as an additional feature, but we are offering that free of charge to our customers with another component in the mix of our product portfolio.

Operator

Thank you. Our next question comes from William Bird from Lazard.

William Bird - Lazard

Could you talk a little bit about sales force dynamics; maybe if you could discuss what the growth rate was in quarter bearing sales people and also kind of what's your plans are for the year?

Jeff Weiner

So we continue to add on the sales front. I mentioned in the quarter we added 331 people, about two-thirds of those were kind of sales and marketing, the vast majority of those was sales. And then you know about 60%, north of 60% were international, that's still our trajectory; we’re still investing heavily in sales force, mostly on the international front and then it mixes by region as well. So the domestic footprint is more expanded on kind of the renewal (inaudible) side of the sales force, while internationally we are still growing the (inaudible) sales force. So that's at a very macro level what we are seeing. We are seeing productivity, one of the things that we monitor is productivity rates.

I mentioned on the prepared remarks the magic number at a very aggregated level, but we also look at the ramp time of sales people as we continue to invest. And now what we've seen is those look steady despite the additional investment in terms of the payback there for sales reps.

William Bird - Lazard

I guess possibly related, as you look at stock based comp which is ramping, does that tie in with just a hot market for people you need to hire and I guess what is your expectations going forward, it's kind of balancing so the upward adjustment in adjusted EBITDA or stock based comp?

Jeff Weiner

The stock-based comp, it is increasing as we continue to grow and add on personnel. There is a few other factors that is driving that more materially the change in this quarter. One is the stock price where it is as we continue to grapple with issues, it's having a larger charge. The other is the acquisition of SlideShare where material component of the deal was around retention and that is recognized on our P&L over the next couple of years here through stock based amortization. So those were the two main drivers other than just adding more employees.

Operator

Thank and our next question comes from Mark Mahaney from Citigroup.

Rohit Kulkarni - Citigroup

This is Rohit Kulkarni filling in for Mark. A quick question on international revenues. There is still a pretty big monetization gap, on a whole year percentage of traffic or user based views versus how much of your revenues come from international markets?

So, I guess my question is are you seeing any evidence in any markets perhaps the one that you entered the earliest, that this gap of engagement and the revenue contribution can be bridged or is being bridged?

And I guess the second question is, any updates on the products or any services offered for current students, recent college graduates have thoughts about the size of the opportunity change or any color on that?

Jeff Weiner

Our member base continues to grow at a fast rate internationally where up to 61% from 56% a year ago and we continue to close that gap on the monetization side, 36% this quarter from 31% a year ago. We do believe we are going to continue to close that gap. We've put a lot investment in terms of building out global field offices, creating local payment platform for local currencies that's driven in that direction. We are stepping up investments in region such as Brazil and throughout Asia.

So, we do see that as an opportunity naturally in more developed economies such as the US and some of the other European countries who are further developed. So we are going to monetize at a faster rate, but we are laying the seeds for (inaudible) and further to continue to close that gap.

Steve Sordello

Could you repeat the second question? I think you were going in and out a little bit there?

Rohit Kulkarni - Citigroup

Sorry over that. I just wanted to see whether you have any updates regarding the products launched for students and recent college grads. Any updated thoughts on the size of the opportunity or how you are approaching this particular set of users?

Jeff Weiner

It continues to be among our fastest growing demographic and segments and we’re excited about the current road map we have. We’re also excited about the response of the team to be recently rolled out and launched alumni product that enables students and really any LinkedIn member should go online and see the path through all people that graduated from similar school. We recently open that product up in such away where you are no longer restricted to nearly the alumni from your university that can actually do searches from across schools. We continue to hear about real strong interest in demand from alumni networks at these universities. We’re very interested in leveraging our group’s platform as well. And again we’re excited we have some things that we haven’t announced yet but we are looking forward to getting those up in to as well.

Operator

And our next question comes from Mark May from Barclays.

Mark May - Barclays

The first one is on premium subscription. I am just curious in the quarter how much of the growth was driven by you know your focus on converting a sustain subscribers to some of the newer market or entered specialize projects or products versus you know kind of growth from your customers. And then sorry if I miss this part I think you had some commentary, Steve, early on amount advertising in Europe in the quarter given that how should we be thinking about the overall marketing services growth for the next quarter or two. Thanks.

Steve Sordello

Hey Mark this is Steve I hope I caught all of that. The question I just said is primarily related to what had Jeff and I had mentioned previously before in terms of leveraging the data, segmenting the products used cases in around the specifics area whether it is sales, lucrative of ED etc and that has had a very big impact fact in terms of the conversion rate. And that is going to be the primary driver. And sales (inaudible) product is starting to sell relative in (inaudible). It is more that we generate some package around the other specific functions and then the second question?

Mark May - Barclays

And just to continue on the premium, I guess the point I think Sales Navigator has higher price point than the average product sales person is taking today. I am wondering how much of the growth in the quarter driven by upgrading converting existing paying subs to the new higher priced product or through just a new customer acquisition in general?

Steve Sordello

Primarily the later. The Sales Navigator products really just launched and so in terms of material dollar amounts, it’s really the latter.

Mark May - Barclays

Okay. And then the other questions around how should we thinking about marketing services going forward given your commentary about some softness in Europe?

Steve Sordello

Yeah, marketing solutions is still growing nicely, clearly, much faster than the industry. In Europe, it is speaking obviously the market is much more difficult. And last year cost, market situation was very strong across the board. So the 40% sequentially last year. So you know you were monitoring it. It is still doing well. We’ve executed better in the first quarter but we do believe that we are being impacted between Europe in particular on the marketing solutions side and we are growing very nicely and more broadly outside of Europe and Asia in the non US Americas, other international markets we’re still growing at a very nice script.

And just to put some perspective in Europe we grew 120% this last quarter in Q1, so when we talk about some sort of event in our pace, its more around relative and we are going to continue to invest in Europe just like we did, when we had a (inaudible) in 2009, we are taking share in that market. So we are monitoring that, it is impacting us, but it’s really been that work and takes the note.

Operator

Thank you. And our next question comes from Craig Huber from Huber Research Partners.

Craig Huber - Huber Research Partners

I have two or three questions. Up first what is your plans for hiring employees here in the second quarter, I believe you said 330 in the first quarter, what's your plans for the second?

Steve Sordello

We still are very much on an investment mode as we continue to see strong opportunities ahead of us. Q1 was a record quarter. We actually expect to exceed that number in the first and second quarter here; I would expect somewhere between 350 and 400 is probably the most likely target. Of which you know still the majority will be on sales and marketing side as well as R&D.

Craig Huber - Huber Research Partners

And then my second question, did you guys think about your budget for the next three years here, what's your long-term goal as a percent of revenue for your four main expense categories, cost of revenue, sales and marketing, product development and G&A?

Steve Sordello

Our long term model is at the bottom line to be at 35% EBITDA margin business and when you look at the comp sales we are currently at roughly 87%. We think that's roughly the range and maybe a little bit more room to move that up as we continue to scale revenue.

On the sales and marketing line maybe 32% this last quarter. Our long-term target model is somewhere in mid 20% range which is hybrid between a fab company and a web company which in our model kind of fits to that.

Our R&D we were 22% this last quarter; we see that going down to most likely high teens range; you know R&D is a very critical area for us and we always benchmark higher than other companies there that as revenue scales you see in high teens and then G&A should be somewhere around 11% typical type of range.

Craig Huber - Huber Research Partners

And my last question please, what is your thoughts on the CapEx for full will be?

Steve Sordello

No change; this last quarter we were a little lighter than our expectation of $22 million which is about 12% of revenue. We still expect to be in the mid teens range in terms of the ratio of sales for CapEx this year; it will lumpy throughout the year.

Jeff Weiner

That’s going to do it for today’s Q&A session. I want to thank everyone for joining us and we look forward to talking to you again next quarter. Thank you everyone.

Operator

Ladies and gentlemen thank you for participating in today’s conference. This concludes our program. You may all disconnect and have a wonderful day.

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