Monster Worldwide Q2 2008 Earnings Call Transcript

| About: Monster Worldwide, (MWW)

Monster Worldwide, Inc. (NASDAQ:MNST)

Q2 2008 Earnings Call

July 31, 2008 5:00 pm ET


Robert Jones - Vice President, Investor Relations

Salvatore Iannuzzi - Chairman of the Board, President, Chief Executive Officer

Timothy T. Yates - Chief Financial Officer, Executive Vice President, Director

Darko Dejanovic - Global Chief Information Officer and Head of Product


Mark S. Mahaney - Citigroup

T.C. Robillard - Bank of America

Peter P. Appert - Goldman Sachs

John Janedis - Wachovia

Christa Quarles - Thomas Weisel Partners

Mark Marcon - Robert W. Baird


Good afternoon. My name is Rachel and I will be your conference operator today. At this time, I would like to welcome everyone to the Monster Worldwide second quarter 2008 earnings results conference call. (Operator Instructions) I would now like to turn the call over to Bob Jones, Vice President of Investor Relations. Please go ahead, sir.

Robert Jones

Thank you, Operator. Good afternoon and thank you for joining us on Monster Worldwide’s second quarter 2008 conference call. Our format calls for us to have formal remarks from 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: Darko Dejanovic, Global CIO and Head of Product; Art O’Donnell, Customer Service; and Mark Stoever, Internet Advertising & Fees. We would also like to welcome James [Langrock], Senior Vice President Finance and Chief Accounting Officer who joined the management team in May.

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 past stock option grants or costs associated with the restructuring and the security breach.

Certain factors, including factors outside of our control, may cause actual results to differ materially from those contained in the forward-looking statements, including economic and other conditions in the markets in which we operate, risks associated with acquisitions or dispositions, competition, seasonality, and the other risks discussed in our Form 10-Q and our other filings made with the Securities and Exchange Commission.

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

Salvatore Iannuzzi

Thank you, Bob. Good afternoon, everyone and welcome to our second quarter earnings conference call. On today’s call, I will share with you some of my thoughts on the current macroeconomic environment and how Monster is operating within it, provide an update on key initiatives underway within our company, and give you a preview of some exciting activities slated for the second half of the year, efforts which I believe will continue to redefine Monster and extend our leadership position around the world. Tim Yates, our CFO, will then discuss the second quarter operating and financial results in detail.

We’re going to keep our scripted remarks to about 30 to 35 minutes today. We have a lot of things to talk about and we want to leave ample time for questions and answers.

Another housekeeping note before we get started: we will be holding investor conferences some time in November. More details on these meetings will be provided in the coming weeks.

For anyone who reads a newspaper or watches television, this isn’t going to come as much of a surprise. The global economy continues to soften. Last quarter in fact we started to see some slowing internationally and now we can confirm Europe is slowing and we’re beginning to see signs of slowing in Asia as well.

Monster, like most global companies, continues to operate in this challenging economic environment. Not surprisingly, this economic slowdown is having an impact on our core business. It’s difficult, if not impossible, to predict when these economic conditions will turn around, so we’ll leave to the experts.

Having said that, what I can tell you is that I remain extremely confident in Monster's ability to navigate through current landscape and grow our market share as well as position the company for robust growth when the economic environment becomes more favorable.

In fact, and I think this is a critical point, we believe that Monster, given the multitude of things that we have done and are continuing to do, will be uniquely positioned in the industry to take advantage of the inevitable economic rebound.

In the second quarter on a non-GAAP basis, we accomplished a major financial goal by significantly slowing the growth rate of operating expenses as we continued to operate in an increasingly difficult global market. The quarter marked the first time since we announced the restructuring plan last year that revenue growth exceeded the increase in operating expenses as costs were brought in line with lower-than-anticipated revenue. As a result, we were able to expand our operating margins sequentially and year over year, demonstrating our ability to manage the business in a tough market, while at the same time continuing to aggressively invest in critical areas.

Operational efficiencies have allowed us to deliver $0.40 diluted earnings per share. Monster has a strong liquid balance sheet to support its growth plans and our healthy cash flow from operations provides the capital to purse strategic initiatives designed to increase shareholder value and position the company well for the long-term.

At this point, I would like to take a few moments to discuss recent developments in two of the outstanding actions related to Monster's historical stock option grant practices. As noted in a separate news release this afternoon, on Wednesday we entered into a memorandum of understanding with the [class representative] and the individual defendants in the shareholder securities class action that sets forth the terms under which the parties intend to settle the securities class action. The terms of the MOU will be incorporated into a formal settlement agreement which will be subject to final court approval.

Additionally, earlier in the week the New York State Supreme Court gave preliminary approval to the settlement of both the New York State and federal derivative lawsuits. A final hearing on the terms of the derivative settlement will be held in early October, at which point we anticipate securing final approval of the settlement.

Tim will speak to the numbers in his comments. However, I wish to emphasize how happy we are with the progress we have made in resolving the outstanding litigation related to Monster's historical stock option grant practices.

We look forward to final approval of the settlements in these cases, the quick resolution of the remaining outstanding litigation, and ultimately the closure of this chapter in Monster's history.

I want to take a moment to do something I normally don’t do and that is compliment our lawyers. But I’d like to thank the team of [Deckert] LLP and our lead external counsel, and [Solomon & Cromwell] for the outstanding job they have done in helping us through these matters.

Because of proactive and deliberate changes we have made, many of the legacy issues that face this company are now behind us and those that remain will soon be resolved. Without question, I am very optimistic about the future of this company.

A year ago, we outlined a comprehensive restructuring plan of our core global functions. At the time, we did not anticipate the challenges that would impact the global economy, namely a deepening of the credit crisis, oil peaking at $150 a barrel, and a collapse of the housing market.

We restructured because it was necessary to make Monster a stronger company, one that delivers better experiences for employers and seekers. However, in light of the downturn in the economy, this restructuring is already paying us dividends and has served us well in maintaining a strong financial and market leading position.

One of the results of our restructuring has been the significant reduction of costs over the past year and the reallocation of those savings to other parts of the business. To date, we have reduced costs by approximately $95 million, or $130 million to $140 million on an annualized basis, and there are additional savings to come.

These cost reductions have come through reduced headcount and to other expense management initiatives. We’ve eliminated positions that were either redundant, non-essential to our core business, or non-revenue generating. We have reinvested those realized savings into revenue and market growing positions, such as field sales, customer service, and product development.

To put this in perspective, from one year ago our total headcount remains relatively flat, resulting in an increase of 11% in annualized revenue per head. This reallocation of resources has positioned us to grow our customer base, develop innovative and new products, provide better customer service and strengthen our overall market position.

It was the right thing to do and it’s given the company a very solid foundation to navigate the current economic conditions and accelerate growth once the economy rebounds.

Should the recession last longer than expected, these changes will keep us strong and growing. Clearly, we could simply cut these costs without reinvesting the savings into revenue and market growing positions but we felt that kind of myopic approach would short-change our shareholders of value in the years to come and we’re simply not going to do that.

Given the weakening economy, coupled with our strong commitment to investment and innovation, we most likely will not meet our target of 25% operating margin by the end of this year. We believe that as the economy improves, this margin target will be well within grasp.

We’re holding back our margin growth to improve product and take market share.

I want to delve into more specifics about where and how we are allocating our resources, and why we chose to temporarily forego the 25% margin target. To break it out, the restructuring has allowed us to reinvest in the following areas, which I’ll go into one by one: sales force expansion, customer service optimization, product enhancement and innovation, geographic expansion, extension of our business into new areas. As you know, we are reorganizing our sales team in North America by regions and we are combining tele-sales with field sales. We are well underway in our hiring of new field sales representatives. In fact, we are celebrating our third graduating class of the new Monster field sales representatives from our training program.

Incidentally, and not surprisingly, we use all of our Monster tools to identify and recruit candidates for these 200 positions, and as a result we have received more than 10,000 qualified resumes.

At the risk of sounding immodest, we really do know how to do this.

We have also invested and added headcount to our overseas sales force. As you know, we have experienced rapid growth overseas and we believe these [individual] sales resources will help accelerate that growth.

One of the benefits of the expanded and newly integrated sales team is that it will enhance the overall customer experience, providing more touch points with the customer, deepening existing customer relationships, and better penetrating the marketplace.

We anticipate that this unified stronger sales force will allow us to acquire new customers and more deeply service our existing customer base over the next two quarters and beyond. We also believe this unified stronger sales presence positions us for exceptional growth as we come out of the global economic downturn.

As part of our efforts to optimize our customer service function, Monster announced in June that we will be bringing our North American customer service operations, some of which currently resides outside of the U.S., to a new state-of-the-art facility in Florence, South Carolina. We expect that this transition will occur between now and Q1 and will allow us to have the most advanced technology training customer service tools in the industry.

We are taking a similar consolidation in Europe as well, with the opening of our new customer service facility in Brno, Czech Republic. This facility will support our European customer base and will help us provide world class service as we become more flexible, effective, and efficient in our approach.

We could take up the entire call talking about our new product development but I won’t make you sit through that, at least not yet. We’ll get into more specifics on products at our upcoming investor conference in November but for now, suffice it to say that we’ve been absolutely committed to putting all the resources of the company behind overhauling the employer and seeker experience, a new Monster, if you will. It’s our biggest overhaul and relaunch since the inception of the company and one that we believe will dramatically improve our ability to anticipate and meet the needs of seekers and employers, energize our associates, and ultimately help us grow market share.

To put it in perspective, we are substantially rebuilding Monster's hiring site and virtually completely rebuilding the seeker experience.

Again, without giving away too much detail, you will be hearing more about this over the next two quarters. Our new offering will make it easier for employers to do business with Monster in that the new product will better match relevant candidates to existing career opportunities.

We understand that for employers, it is about quality candidates, not quantity. Our new technology will deliver more qualified candidates to help fulfill talent needs more quickly and more efficiently. These new applications will increase recruitment productivity and make it easier for employers to find the right person for the right opportunity.

For seekers, these new products will provide a highly customized, personalized, relevant experience, unparalleled online career management resources, and innovative targeted patent pending behavioral technology.

For employers, it will improve performance, streamline processes, and make the experience more intuitive and provide new applications for our recruiter customers.

As the creator of the online recruitment industry, Monster not only has 15 years of experience but also 15 years of rich data that gives us strategic insights into career pathing trends that no other company can claim. We are right now harnessing the power of this data to help recruiters make better strategic hiring decisions while also helping seekers explore and reach their career aspirations.

I would like to take this opportunity to comment on our announcement that Monster has acquired Trovix, a company based in Silicon Valley. Trovix is a leading provider of employment products that use advanced Symantec search technology that has the ability to analyze resumes and job descriptions by focusing on key attributes, such as skills, work history, and education. This is an all cash deal priced at approximately $73 million.

This acquisition will allow us to leapfrog the competition when it comes to search engine and matching capability. Let me be clear -- this technology, combined with the other innovations we just discussed, will provide a game-changing advantage for Monster, one that we think will further position us to provide the best customer experience for both seekers and employers.

This deal is another example of our continued commitment to developing and acquiring the most innovative technologies in our space.

Additionally, we’ve also acquired a military site in France called, which establishes a beach head for us in Europe and expands our overall military portfolio, where we are already the market leader.

In addition to those deals, we have formed two new partnerships that we are very excited about, one with Cornerstone on Demand, a leading, e-learning company that will provide learning and development online courses to Monster jobseekers. The other, Hire Right, an on-demand employment screening solutions company that will allow Monster to provide recruiters and seamless candidate evaluation.

Two weeks ago, we launched something we call target post on our e-com platform. It’s a quick, easy, and affordable posting product targeted at the skilled and hourly recruitment market. We’re very excited about its potential to address this market much more effectively and efficiently.

As you know, we’ve been in negotiations for some time with China HR to finalize that acquisition. We are hoping that we will close it in Q3 and will continue to move forward with our due diligence.

Beyond China HR, however, we are looking at other opportunities in China and elsewhere as we continue to expand our global footprint.

In sum, we are spending your money wisely and aggressively overhauling our company. We are making the right investments, improving our products and technology, revitalizing our customer service, and expanding our markets. And as such, we are poised on a global basis to reap the benefits when the economy rebounds.

Put simply, we are on the right course and we don’t want to deviate from it. Irrespective of continued market turbulence in the months ahead, we will stay the course and continue to grow our business through investments in new technology, our sales force, and overseas markets. We are not going to cut our way through a recession for short-term gain at the expense of long-term growth.

I’m extremely proud of the progress of this company. This progress would not have been possible without the dedication and hard work of our nearly 5,400 global associates. Monster is not about one individual; it is about the sum total of each of those 5,400 individuals and their daily contributions to making this company stronger and better, and to helping improve [inaudible] every day.

I want to thank them for their commitment and I look forward to working with them to continue the momentum we’ve built.

I will now turn over the call to Tim, who will provide a more detailed look at our operating and financial performance in the second quarter. Tim.

Timothy T. Yates

Thank you, Sal and good evening, everyone. I would also like to welcome James to the Monster finance team. Both Sal and I have worked with James and have the highest regard for his abilities and I look forward to introducing him to you in the near-term.

First I will review our income statement highlighting our non-GAAP results while providing the GAAP reconciliations. I’ll then review the results within our operating segments, including our investment in China HR, and finish with a discussion of the balance sheet.

I would like to point out that the results of Tickle are classified as discontinued operations for all periods presented.

Consolidated revenue reached $354 million in the second quarter, a 9% increase over the prior year period. Excluding a $14 million currency benefit, revenue grew 4%. In last year’s second quarter, currency had a positive impact on revenue of approximately $6 million versus the 2006 period.

On a non-GAAP basis, operating expenses grew 6% over the prior year period to $276 million, a significantly slower growth rate than prior period. This deceleration was primarily driven by operating efficiencies as a result of tightly controlled headcount and a more effective media spend, while continuing to allocate resources to critical revenue generating areas.

On a year-over-year basis, the currency impact on operating expenses was approximately $10 million. As a result, the non-GAAP operating margin expanded to 22% from 12% in this year’s first quarter and 20% in the 2007 period.

We are pleased with our progress thus far in our restructuring and our ability to control operating costs while making critical investments. However, as Sal has noted today and we have consistently noted over time, it is important for the company to continue to invest to protect and enhance the long-term value of our business. So while we will continue to be vigilant in managing operating costs and efficiencies, we will also continue to make the investments we have been talking about. The trend in operating expenses will not be linear and the progression in our operating margins is partially dependent on our revenue, which in turn is dependent on the overall economic environment.

Interest and other income was $3 million for the quarter, a 56% reduction over the prior year period, mainly reflecting our shift into U.S. government, short-term taxable instruments. Our effective tax rate was 35% and the loss in equity interests was $3.6 million. The diluted share count was $121.5 million, a 9% year-over-year decrease, reflecting repurchases of our common stock and a lower average quarterly price.

Excluding the items we have highlighted, income from continuing operations was $49 million, or $0.40 per diluted share, compared with $43 million, or $0.32 per diluted share in last year’s second quarter.

Before discussing the segment results, I want to review the impact of certain adjustments recorded in the second quarter that reconcile our GAAP and non-GAAP results. There are three pieces; first, as disclosed in today’s press release, the company has established a net provision covering $40 million related to the proposed settlement costs associated with outstanding fines and litigation stemming from the company’s historical stock option grant practices. The MOU, which provides for the full settlement of the claims asserted in the securities class action, calls for payment to the class of $47.5 million, the cost of which to the company will be approximately $25 million net of insurance recovery and payment by another defendant.

In addition to this provision, we have accrued an estimated $15 million to resolve other open items.

Second, and separate from the provision on the settlement, we also incurred $4 million of professional fees related to the external investigation during the quarter.

And third, $3 million of restructuring and other special charges, primarily related to severance costs.

Including these costs, the GAAP operating margin was 9% and income from continuing operations was $19 million, or $0.15 per diluted share.

As discussed last quarter, we are winding down the operations of Tickle and accordingly, we have restated its historical results as a component of discontinued operations. Included in discontinued operations for the second quarter is Tickle’s Q2 operating loss of $3 million and asset write-downs of $13 million, offset by an income tax benefit as a result of the wind-down. As such, we have recorded a net gain in discontinued operations of approximately $12 million, or $0.10 per diluted share.

Turning to the results of the operating segments, revenue from the combined career segments was up 10% over the prior year period and the consolidated non-GAAP operating margin for the second quarter was 29%, a six-point increase over the prior year period.

The value of Monster's broad geographic footprint is clearly evident this quarter. Our global product offering provides an important competitive advantage as we compete for business in a tough market, and while many of the economies around the world are slowing, following the United States, the fact that many of those markets are in an earlier stage in their conversion from print to online recruitment advertising appears to be mitigating to some extent the impact of the slowing of those economies on us.

The combined impact of these factors means that the international segment revenue grew 34%, or 23% excluding a $13 million currency benefit, reaching $157 million in the quarter.

The non-GAAP international operating margin more than doubled over the prior year period to 21% in the second quarter.

North American career revenue declined 6% to $164 million in the second quarter, as the weaker U.S. economy reduced overall hiring demand. Despite lower revenue, our ability to closely monitor the cost structure and reduce operating expenses while still investing in critical areas led to a non-GAAP operating margin of 36% in the second quarter, an increase of almost 500 basis points over the prior year period.

Our IAF business generated revenue of $33 million in the second quarter, a modest increase over the prior year, after adjusting historical results for the wind-down of Tickle. Looking ahead, we are optimistic about our IAF businesses.

Q2 marks the first quarter of slight growth since making the strategic decision mid last year around interstitial inventory and eliminating the student lending category of advertisers. We believe we have overcome these hurdles and are optimistic about the growth opportunities in lead generation and display across our sites.

The non-GAAP operating margin expanded sequentially to 15% in the second quarter and was below the 17% margin reported in the prior year, primarily due to higher operating costs in the quarter in part resulting from the acquisition of Affinity Labs.

Turning to our investment in China, we recorded a loss in equity interest of $3.8 million in the second quarter of 2008, which was higher than we anticipated due to additional bad debt expense recorded resulting from our ongoing due diligence efforts. Excluding the accounts receivable write-down, the loss would have been in line with their business plan and more consistent with past results.

Negotiations are at a critical stage. As Sal has mentioned, we are hoping that the transaction will close in Q3 and at the lower end of our original price expectations.

China HR’s revenue continues to grow at a faster pace than our overall international revenue and we are very committed to the long-term potential of the China market. We will, however, need to make significant investments in people, product, marketing and technology to fully capitalize on that potential.

In looking at the balance sheet, deferred revenue increased 4% over the prior year and was flat when excluding the benefits from currency, indicative of the slowing global economy.

Cash flow from operating activities in the second quarter was $71 million and capital expenditures were $30 million. In the quarter, we spent $6 million on stock repurchases to acquired 278,000 shares at an average price of $22.51.

Slowing our buy-back during the past quarter has been a difficult decision. We certainly believe that our current stock price does not adequately reflect the value of our company. However, because of the extreme market dislocations and an uncertain global macro environment, we believe that maintaining a strong liquidity position is of great value. We were preserving liquidity in anticipation of the potential resolution of the legacy legal issues and with today’s announcement, those are now close to being resolved.

In addition, a number of potential business opportunities are presenting themselves, such as today’s announcement, announced acquisition of Trovix.

We will pursue these opportunities to conclusion. As they become clearer and as the macroeconomic environment begins to turn, we will not hesitate to pick up the pace of our buy-back as appropriate.

As of the end of the quarter, we had approximately $168 million remaining under the stock repurchase program. Our net cash and securities balance was $533 million, which includes auction rate securities with a fair value of $99 million that are recorded as long-term assets. Our auction rate securities are primarily triple A rated and approximately 90% are backed by the U.S. government guarantee, with the remaining 10% backed by private insurers.

The company recorded a $1.4 million temporary impairment related to these auction rate securities as a component of stockholders’ equity at the end of the second quarter, down when compared with the $1.7 million temporary impairment recorded at the end of March, reflecting redemptions during the quarter.

In addition to the capital on hand and our improving ability to generate cash, we have an existing unused $250 million credit facility and no debt.

I will now hand the call back over to Sal for his closing remarks.

Salvatore Iannuzzi

Thank you, Tim. Let me sum it up -- we are confident in the company’s long-term potential. We will make investments decisions based on the long-term and not short-term gain. The transformation continues. Many, many positive changes have occurred. The momentum continues to build and over the next several quarters, you will see much more.

Thanks to our dedicated associates, we are committed to providing the support and resources they need to continue to perform at the highest level. We also want to thank our shareholders for their ongoing support and interest in Monster.


Robert Jones

We’re ready to take the questions.

Question-and-Answer Session


(Operator Instructions) Our first question comes from Mark Mahaney of Citigroup.

Mark S. Mahaney - Citigroup

Thank you very much. I wanted to ask about the international markets. Can you give us any color on which particular markets or which particular geographies saw a material deceleration, anybody stronger than another -- any countries stronger than others?

And then on these non-GAAP adjustments, are we close to the end on those in terms of the professional fees and the severance costs going forwards, or should we expect to see them for the next year or so? Thank you.

Salvatore Iannuzzi

Well first of all with regard to the markets overseas, I think that last time we spoke, we started to see slow down, particularly in the U.K. and maybe a little bit of a glimmer of, as it turned out, what’s to come in France, but I think now we can report we’ve seen the -- the slowdown has hit virtually all of Europe. Where we’re not seeing it as much is in eastern-most Europe but even there, there were signs where things are slowing up. Having said that, we’re still growing but without question, Europe has slowed down significantly, whether you are talking about the U.K., Italy, France, Netherlands -- just virtually every market. And we are seeing signs where, through China HR particularly, that there is some sluggishness. Some say it’s in anticipation of the Olympics, some say there is -- you know, it was inevitable, given the rise that the overall economy had. But we are certainly seeing some sluggishness in China. And there is concern throughout where we operate in the Pacific Rim.

So I think that it’s fair to say, and I’m sorry, I forgot to mention, India, we’re starting to see a definite slowdown in India, particularly in the sector where we have seen very sizable growth, as many companies had seen a lot of growth in the technology area.

So I think that it’s fair to say now that what started in the United States, wherever you peg it at, whether it was in Q4 of last year or whether it was in Q1 of this year, that the slowdown is truly global at this point, at least from every indication of what we’re seeing.

And I’m sorry, the second part of your question?

Timothy T. Yates

The second question was on the non-GAAP adjustments. I’ll take that one. I think with regard to the stock option investigations and litigations, the provision that we made gets the big amounts behind us and resolves that in a manner we believe is satisfactory. There are a couple of remaining litigations outstanding where the company is, you know, will be picking up the cost of the defense for former employees and those are very hard to anticipate what the cost of that will be. However, the big resolutions I believe are behind us.

With regard to the restructuring, we are as I said continuing to look for ways to make efficiencies and there may be some more but I think with regard to what we’ve announced so far, we’re towards the end of that at this stage of the game.

Salvatore Iannuzzi

Just to follow-up on what Tim said, I think with regard to the restructuring, the major charges that we see are largely behind us. I think there are still opportunities there and we may identify even some that we’re not thinking about tonight. If that happens, obviously we will tell you about them and tell you what’s going on and what the costs are, but I think that what we are gratified by is that we’ve achieved very close to the target we set out to achieve in terms of savings at a small percentage of the costs that we originally thought we would incur in doing it.

With regard to the -- just one more comment with regard to the stock option. I just want to reiterate what Tim said. Look, this is a big occasion for Monster, putting I think the overhang, if you will, we believe largely behind us in terms of certainly the economics and also that we can get management’s attention away from having to deal with this issue and our legal department, et cetera. I think it’s a huge win to Monster to be able to say hey, that chapter, it looks like the door is finally starting to swing shut, and I think that, as I said before, I think that the result was far better than we would have anticipated even six months ago, so we’re really happy to get that one behind us. We can think more clearly about where we need to invest, where we need to put our money, whether it be in acquisitions and the buy-back and other things that are much more productive, if you will, to our shareholders going forward.


Thank you. Your next question comes from T.C. Robillard of Bank of America Securities.

T.C. Robillard - Bank of America

Just wanted to talk a little bit about the margins trends, just given all the comments that you made. I mean, clearly the weakening economic environment, the restructuring, you guys officially punted on the 25% target for the end of the year but I’m just trying to get a sense -- at the 22% rate that you came into in this quarter, is there still ability for sequential improvement or are we essentially at a level at 22% that it’s going to basically be revenue generated margin expansion from here?

Salvatore Iannuzzi

We’re not going to comment really on where we expect to be in the future. As you know, we have a policy of not giving guidance.

Having said that, first of all with regard to the 25%, if we had chosen to by making about $11 million to $12 million less investment in Q2, we would achieve the 25% margin in Q2. We decided some time ago that the right course of action for this company was to invest and we are going to continue to do that. I think going forward, there was still opportunities to save money, to do things more efficiently. I will also tell you that there are opportunities for us to spend money and to invest and we are going to seize those opportunities when we think it’s appropriate, when we identify them, when we think the opportunity is right.

So it’s very hard to predict and we really, given the mode this company is in and given the direction we’re going, I think it’s one of the key reasons why we stopped giving guidance. We could have quarters where we decide to invest more and then we could have quarters where we decide to invest less. I will tell you that it would be a mistake for anyone to assume that even if we were to hit above 25% margin in one quarter, that that would be repeated the next because in the investment mode and the growth mode that we’re in, we just cannot manage the company that way.

T.C. Robillard - Bank of America

Maybe to look at it a little bit differently than -- the acquisitions that you’ve talked about and some of the new partnerships that you were remarking on that you completed, is that going to -- how should we be thinking about then the operating expense? Are these going to be more inefficient properties or assets that you are bringing on now that you have room for cost improvements as you go forward? Or are they coming on at roughly around the same margin?

Salvatore Iannuzzi

We think they are predominantly higher value businesses. I think the Trovix we believe will have far-reaching effects on the company. Trovix was not acquired for its revenue generating capability in and of itself. Make no mistake about it -- Trovix was an acquisition where we bought the technology. We said some time ago that we -- there’s a lot of development, a lot of research going on within the company but let’s just say we’re not too proud to go out and identify other technologies that are out there that could supplement and leap-frog us in our own development efforts, and Trovix is exactly that. So it is an investment which we believe in the not-too-distant future, really in a matter of months, will transform, help transform Monster into a value proposition that will be far superior to any of our competition anywhere in the world.

Timothy T. Yates

If I could just add to that, the alliances that we’ve announced today are largely revenue production and don’t attract a large amount of operating costs, so they’d be accretive to our margins as they are successful.

Salvatore Iannuzzi

Those were basically situations where we have captured the seeker or we’ve captured the employer, and it’s a continuation of that sale, so there’s really very little additional cost to those. And I think in the months and hopefully years ahead, you’ll see many more of those.


Your next question comes from Peter Appert of Goldman Sachs.

Peter P. Appert - Goldman Sachs

Thanks. Sal, just so I better understand this, the marketing spend in the second quarter is obviously down pretty substantially sequentially and year to year, and yet your comments might imply that we should anticipate that number then rebounds late in the year, so can you give us any -- recognizing you don’t give guidance but give us some help in terms of understanding how you are thinking about that number and what it might look like and to what extent -- and help us understand that the earnings upside this quarter is not just a function of deferred marketing spend.

And then related to that so it still is part of the one question, the economics of Trovix, how do you monetize that acquisition? Thanks.

Salvatore Iannuzzi

I’m going to answer the first part of your question and then I’m going to turn it over to Darko with regard to Trovix.

Look, let me be very, very clear -- the decrease in cost in marketing was not designed to dress up the numbers for Q2. The decrease in cost in marketing was anticipated, we said it earlier on in past calls that Q1 would see a significant up-surge in marketing costs because of the rebranding effort, which we are extremely gratified with the commentary and response from our employer base. And it was not something that we were anticipating repeating in subsequent quarters.

I will tell you, and as Tim has said, you will see quarters where there will be up surge in spend, not only in marketing but perhaps even in other areas, dependent upon the opportunities that we see there. I do not believe right now based on what we see, and this is not a promise; I’m just giving you what I can see in front of me right now, I do not believe that the marketing spend will vary too much from what you see it this quarter for the remainder of this year.

Having said that, we have a massive relaunch of our employer and seeker site which will occur starting on the employer side during the remaining months of this year, and you will -- and I think we can handle the marketing costs associated with that within the budget -- you know, within the kind of numbers that you are seeing right now.

On the seeker side, we have a huge release in January. It would not surprise me if we were going to put substantial marketing dollars behind that launch in January. Now, I don’t want you to walk away thinking that that surge will be what we did in Q1 of this year, but I would not be surprised if there is a significant movement in the cost of marketing in that quarter and then again we’ll return to more normal levels, if you will, later in subsequent quarters in next year.

The basic message, and again I want to try and be as clear as I possibly can on this, is that we will spend when we feel we need to spend. We will spend when we have delivery of product, when we have delivery of services to our customers, to make sure that they understand the value proposition that Monster is bringing to them, and then when we don’t see the opportunity or we don’t see the need and the return to our shareholders, we won’t.

Darko, can you give him --

Darko Dejanovic

So Trovix was a technology acquisition that gives us a very different search and match experience on the site. Ultimately, if you look at what we do, having the best search experience on the site is the core of our business. As a result, we think by having the best experience on the site in terms of the search and Trovix has some other technologies that will allow us to launch some new products, we are going to attract significantly more seekers and employers.

On top of that, seekers will get engaged more into the site, they are going to spend more time on the site; therefore resulting in significantly more advertising to be sold on the site.

So new applications will also track [fast seekers] that are obviously more difficult and more expensive to get and the bottom line is when you have the best search and match, the best applications online, you are going to be able to grab some more market share from your competitor. So Trovix will allow us accomplish all of that in addition to, as Sal just mentioned, a number of applications and the relaunch of our sites later in this year.

Salvatore Iannuzzi

I just want to add to Darko’s comments for one moment. I’ve had the privilege in my career so far to be involved in I guess three different industries, or three different types of business -- financial services, hardware, and now an Internet company, or media company or whatever you choose to define Monster as.

The one thing that I’ve always found is that the game is won by those who have the best value proposition for the customer -- those that deliver the best service, those that deliver the best product that accomplishes what the customer wants to accomplish and is trying to accomplish.

What we’re doing, Trovix, what Darko and his team are totally dedicated to on a very, very substantial scale is the development of product on a level that we will have no competition, okay? That is the goal, that is the mantra, that is what people come into work every day to achieve and that’s what we intend to do.

Darko Dejanovic

Let me add, as Sal mentioned, I mean, the changes we are making to the site are not small changes. We believe fundamentally that between the acquisitions and innovation on our site, this is going to put us a generation or two ahead of the industry and our competitors, so they are very, very sizable improvements.


Your next question comes from John Janedis of Wachovia.

John Janedis - Wachovia

Thank you for taking the question. Tim, could you clarify the expenses to the quarter? Meaning I think on the last call, you guys indicated that you were expecting non-GAAP expenses of around 292, and I’m just wondering, what is the comparable number for the quarter? Thanks.

Timothy T. Yates

The comparable number is 275.

John Janedis - Wachovia

So were there things that came up in May and June that you were able to pull back on, or could you just give some kind of color on what the difference was?

Timothy T. Yates

Sal addressed it a little bit in terms of the reduction in the marketing expense. There are two components to it from a numbers perspective. We were tighter. We kept tighter control of the headcount during the quarter. We did not hire as much as we had previously anticipated in our plans and we -- the marketing spend turned out to be somewhat lower than at that time.

It partially reflected, I think the -- what we saw in the overall economy but also it partially reflected the fact that some of the hiring couldn’t be done in the time available.

Salvatore Iannuzzi

I think that one thing to note, particularly on the marketing piece, let’s return to that for just a moment, we’ve been getting -- what’s masked by the numbers is that we really have been getting much more efficient, much more surgical in our marketing spend. We are getting much better at it than we were before. Previously, let’s just say the company was taking more of a [break shot] approach at what we did in marketing. We’re fine-tuning it. We’re getting more specific. We’re getting more efficient. Our partners, particularly BBDO, are assisting us in sharpening our pencil there. I think you saw that we’ve made some management changes in that area. That’s reflective of the benefit of those relationships and so it’s not just a total -- that we’re reducing the amount of marketing; it’s also that we’re getting a lot more for the dollar than we have been getting previously, and we think that that will continue and I think that the campaign and what we do in the future will be much more tailored to what we will be delivering in terms of product in the next six months or so.


Your next question comes from Christa Quarles of Thomas Weisel.

Christa Quarles - Thomas Weisel Partners

I have more of a philosophical question. You know, as we look at Trovix and Affinity Labs, the cycle is what it is but I guess if you could kind of take a step back and say as you emerge from this current business cycle, where do you stand competitively as a true, next-generation web tool company? We’ve seeing Linkedin obviously with a $1 billion valuation. Kind of walk us through what you anticipate this new Monster to be. You’ve got this new launch in January but Trovix, is that going to be embedded with that? And I’m just trying to understand and can you hire I guess appropriately to make yourself competitively positioned in this environment where product development is going to be marquee to growth in the future? Thanks.

Darko Dejanovic

I’ll take that. If you look at what we are going to release and what Sal mentioned over the next six to nine months, we are improving our search and match capability. Clearly Trovix is a big play in that. We are introducing more applications over the next six months or so than combined than we did over the last six or seven years ago, and those applications fall into two categories -- some that are very unique in the marketplace that we don’t believe anybody else has and some other ones that some of our competitors have but frankly, we think ours is going to be better.

We are eliminating platforms globally. This was a big problem for us in the past because we couldn’t roll out software globally with the speed that we wanted to. Sometimes you would see something rolled out in North America one year; it would take a year or two years to roll it out globally. We are going to be capable [inaudible] on one global platform in 20, 30 countries at a time if we want to do that, so that clearly is going to allow us to get to the marketplace significantly faster.

Integration and future developments of new products -- Trovix, as we mentioned, is not just, you know, search. They have a number of applications that we think are going to be extremely powerful.

So as I mentioned earlier, we look at generations of technology that exist out there, particularly in the search area, which is the core of our business, where we think most of the industry is at generation one to two. We think we are going to move into generation three to four, not only with Trovix but we also think with the number of innovations that we are making internally and with some other partners.

So if you look at Monster today versus six to nine months out, I think we are going to be a premiere site with very unique applications that are differentiating us from our competition and I think that’s going to enable us to really drive the market share.

Salvatore Iannuzzi

I think that there’s obviously -- you heard me before and I totally agree with what Darko just went through, but I think the sum total on what’s coming together is the product experience to both the seeker and the employer is going to be greatly enhanced. Trovix without question will be embedded in that, and customers will begin to see benefits very, very quickly with the acquisition. This is not an integration, if you will, that’s going to take years before we see any benefits from it.

We look very carefully that this is something that we would start to see benefit very, very quickly.

I think that when you look at what we are doing in sales, the transformation of a sales force that’s much more geared towards talking to the customer face to face, a real field sales team on a much more expanded basis than what we’ve been able to field to date. We will more than triple it, actually quadruple it in the next six months.

What we are doing in customer service, what we are doing inside the company in terms of motivating people and getting people charged up to come to work, the people that we are bringing into the company, the quality of the people that are coming in to supplement a lot of good people that are here already.

I think that when you look at all of that and you see -- you know, it’s very hard to describe what’s going on every day inside the place. I get to see it because I’m here. It’s fairly staggering and people within the company are saying wow. I’m giving a talk to our employees, you know, we do it every quarter up in Maynard and we have people online or what have you, listening around the world. We had a talk about a year ago about getting on the Monster train or not, okay? We’re going to talk to them this time about how the Monster train is moving and moving fast. The kinds of things we announced today, the affiliations with other companies, the acquisition of Trovix, and really I can’t talk to them yet, and I’m sure you understand that, but there’s a lot more in the pipeline.

I think that the offering to the customer and the value proposition that this company is going to offer in the not-too-distant future now -- this is not a promise that people have to wait years for, we’re virtually there now -- is going to be very, very substantial. And I think we’ll see benefit, we’ll see benefit in market share, irrespective of the economy and with a little help and we have to [inaudible], I guess, that the world will improve and the world economy will improve again. When we get the up-surge from that, I think that we’ll be in a good position to take advantage of it in a fairly big way.

Darko Dejanovic

Let me just add to what Sal said and with respect to Trovix particularly, you are going to start seeing products coming in, some in beta version, some in full-blown versions, Q4 of this year and really then we are planning to internationalize and roll them out in Q1, Q2 through Europe and the rest of the world. And it’s fairly different. You are talking about moving from where most of the industry today is, kind of keywords and basic search into a conceptual [machine learning] search which is very, very different and creates very different results for our employers. So we think we are going to [reap] the benefit from that.


Your next question comes from Mark Marcon of Robert W. Baird.

Mark Marcon - Robert W. Baird

Good evening. Could you talk a little bit about the monthly trends that you saw both in North America as well as in Europe as they unfolded and what you saw into July, just so we can get a little bit of a handle with regards to what to at least expect on the top line for this coming quarter?

Salvatore Iannuzzi

Mark, I may have missed the last couple of words that you said, but I think -- let me repeat the question and make sure that I got it. You were breaking up there a little bit. It was can we talk a little bit about what we saw as we progressed through the quarter month by month on how things were faring and how -- I guess what you are really thinking about is how sales went and did we see things getting worse as the quarter progressed.

Mark Marcon - Robert W. Baird

Right, and then -- I’m just trying to triangulate a little bit with regard to -- obviously we have to put together some projections in terms of how the third quarter and beyond is going to look and I know that’s not what you are focused on. You are focused on building the franchise over the long-term. Just to think a little bit about the shorter term, just try and understand how things have been trending and what we could potentially expect out of the --

Salvatore Iannuzzi

I’m going to correct you on just one thing -- we are very focused, we’re just not sharing what we’re focused on.

But really, I think throughout the quarter, throughout Q2, and I need to explain to you a little bit about how this business operates a little bit, so that -- we have seen sluggishness, if you will, a slowdown, progressively throughout the year. It did start in Q4 and then it continued throughout this year. But it’s difficult because inevitably, as you might imagine, every sales organization has an up-surge of activity in the final month of each quarter. Some of that is seasonality but some of that is just the way it is. They put on a bigger push as they get closer to the end of the quarter because they want to get paid.

I think that -- so you tend to see more at the end of a quarter as really how things are going to pan out, just because the greater percentage of sales are in that final month of a quarter.

Having said that, adjusting for that -- and take this with a grain of salt, because it’s sort of a little bit touch and feel -- I think that it’s fair to say that certainly Q1 versus Q2, Q2 was softer. We saw a deepening of the recession both here in the U.S. and certainly overseas where we just had some minor indications, relatively minor in Q1, we saw a lot more in Q2.

I think that there is a sense -- and again, it’s just that, it’s a sense; I would not take this to the bank, as much as I wouldn’t take to the bank that oil is stabilized, that it’s now in a downward spiral and we won’t see it spike up again in the near future. I think in certain places, there seems to be some stability creeping in but that’s very, very preliminary and I wouldn’t bet on it at this point. I think that what you would have to assume is that things will probably continue to soften somewhat overall before they get better and chances are and -- we’ll see. I think all of us are seeing a situation with regard to the economy that not too many of us have seen before, but if it holds to patterns, I think we’ll start to see when it starts to recover. Hopefully some of that recovery will start in the United States and then just the way it started in the U.S., it will probably start to improve in the U.S. and then expand globally, trailing that.

But right now, if I had to bet, I’d say things will probably continue to soften somewhat and really what we are doing is preparing for the up-surge but also a lot of the things that we are doing is to fight back -- we’re not waiting for the call, the recession to be over. What we are doing is to put ourselves in a position to fight back and minimize the effect of the recession as much as we can, by the product offerings, by adding the sales people, improving service, all the other things that we are doing.

Now, what I can never prove to you is how much worse would it have been if we didn’t do those things and unfortunately, that’s not that I don’t want to share that, I simply don’t have those kinds of metrics. I wish I did.

But we’re doing everything we can not just in preparing for the turnaround but we also put ourselves in a better position we can to fight while we are going through this.

Mark Marcon - Robert W. Baird

Just a second question, real quick --

Robert Jones

Mark, this is Bob, and Operator, we’d like to make this the last question.


Yes, sir. Thank you so much. That’s all the time we have for questions today. At this time, I would like to turn the call --

Salvatore Iannuzzi

Operator, I’m sorry -- we’ll take Mark’s remaining question and that will be the last one.


Okay. Give me just one moment and I will open his line again. Mark, would you mind pressing star, one on your telephone keypad one more time and we’ll get you back in queue here? Okay, sir, your line is open.

Mark Marcon - Robert W. Baird

Was there any shift in expenses from the divisions into corporate, exclusive of the charges?

Timothy T. Yates

Well, there’s a couple of things going on in corporate. It is a larger number, obviously. The biggest component is the provision. We have been over time building more of what we call corporate staff here that has not been allocated back to the business line. As we’ve grown into more global functions, if you will, we’ve kept more of the corporate staff there. We have also got a couple of consultants working on major internal projects that are kept at corporate, pertaining to some activities we have going on in the finance organization.

Those ingredients reflect the majority of the increase that you see there.

Salvatore Iannuzzi

I’m really happy that you asked that question because I asked Tim that same question the other day and he said it was my personal expenses. That is a joke. But seriously, I think that what you will see and you know, we’re strengthening like we’re strengthening virtually every other aspect of the company, some things that we do and I think what you will see over time, right now we have a number of initiatives that rather than worry about where we charge them, we’re just holding them up top but over time, we’ll fine-tune them and push them to wherever they should go.

Timothy T. Yates

I’ve alluded to a couple of times in the past that because of the shift to global functions that the current segment reporting, while meaningful, is less meaningful because of exactly this pattern, so this is one of the first things my friend, Mr. Langrock, is going to help us out with.

Salvatore Iannuzzi

And just to make sure there is nothing else going on, I’m checking Tim’s personal expenses very carefully to make sure that the up-surge isn’t due to him or Darko or anyone else.

Mark Marcon - Robert W. Baird

But it’s not like you’re adding significant corporate staff. It’s just a shift.

Salvatore Iannuzzi

That’s correct.

Mark Marcon - Robert W. Baird


Robert Jones

Okay, with that, let me thank you once again for joining us on this afternoon’s second quarter 2008 conference call. To listen to the replay of this call, you can dial 800-642-1687. There’s an ID number. It’s 54799235. And you can also access the call on the investor relations section of the Monster Worldwide website. And as always, please feel free to call me, Bob Jones, any time at 212-351-7032 with any further questions. Thank you very much.


This concludes today’s conference call. You may now disconnect.

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