Monster Worldwide, Inc. Q1 2006 Earnings Conference Call Transcript (MNST)

Apr.26.06 | About: Monster Worldwide, (MWW)

Monster Worldwide, Inc. (NASDAQ:MNST)

Q1 2006 Earnings Conference Call

April 26, 2006, 10:00 a.m. EST

Executives

Bob Jones - Investor Relations

Andy McKelvey - Chairman and Chief Executive Officer

Steve Pogorzelski - International Group President

Lanny Baker - Chief Financial Officer

Bill Pastore - President and Chief Operating Officer

Doug Klinger - President of Monster North America

Analysts

Christa Quarles - Thomas Weisel Partners

Peter Appert - Goldman Sachs

John Janedis - Banc of America Securities

Lisa Monaco - Morgan Stanley

Jeetil Patel - Deutsche Bank

Mark Mahaney - Citigroup

Mark Marcon - Robert W. Baird & Co.

Operator

Good morning. At this time I would like to welcome everyone to the Monster Worldwide first quarter 2006 earnings results conference call. (Operator Instructions) I would now like to turn the call over to Mr. Bob Jones, vice president of Investor Relations. Sir, you may begin.

Bob Jones

Good morning and thank you for joining us on Monster Worldwide's first quarter 2006 conference call. We will have formal remarks from Andy McKelvey, Chairman and Chief Executive Officer; Steve Pogorzelski, International Group President; and Lanny Baker, Chief Financial Officer. Bill Pastore, President and Chief Operating Officer and Doug Klinger, President of Monster North America will join them in answering your questions following the formal remarks.

Before we begin I would like to remind you 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. Certain factors including factors outside of our control may cause actual results to differ materially from those contained in the forward-looking statements, including: economic and other conditions in the markets in which we operate, risks associated with acquisitions, competition, seasonality, and the other risks discussed in our Form 10-K and other filings made with the Securities and Exchange Commission. With that, I'd like to turn the call over to Andy for his comments.

Andy McKelvey

Thanks, Bob. Before I start, a personal note. So many of the Monster employees listen to the quarterly call that I'd like to take this opportunity to thank them for all the get well cards and all the e-mails. I really appreciate it, and it meant a lot to me. I'm back. Things seem to have gone very well without me, so let's proceed.

Good morning, everyone, and welcome to our first quarter 2006 conference call. We're very pleased with our strong performance and exceptional results for the quarter. Certainly 2006 is really off to a terrific start. We surpassed even our own top and bottom line expectations with stronger growth across the globe.

We reached a significant milestone in the quarter as our trailing 12-month revenue topped $1 billion for the first time. As I have often said, as satisfied as we are about our performance today, we always take a long-term approach to managing our business.

Our goal is to continue to profitably grow the Monster franchise globally while advancing the online recruitment industry we created some 11 years ago. Our outstanding first quarter results are certainly another positive step in the right direction. We are very encouraged about where we are today and excited about the road ahead. We will continue to invest in our business to position Monster for even higher growth in the quarters and years ahead.

I believe one of the keys to our success is the balance and focus we've created across Monster. The initiatives we took three years ago to restructure our operations and invest in sales force expansion, global brand building, and enhanced technology have certainly paid off. Clearly we were in a terrific position to benefit as demand for our services grew and market conditions have improved.

More importantly, our customers are turning to us more and more for recruiting solutions as the markets tighten and as shortages of skilled workers grows and grows.

In looking at the highlights of the quarter, our top line growth, especially when compared to both print and other online help wanted franchises, was exceptional. Revenue at Monster grew 36% to $257 million, fueled by a pickup in revenue growth in North America; a better than 50% increase in revenue in our international business. Our consumer, or Internet advertising business, generated over $32 million in revenue, an increase of 31%. This business is part of our strategy to grow revenue from additional sources.

As a top 15 visited website, we believe there's significant opportunity to more fully monetize traffic, and we're confident that Internet advertising will provide another source of revenue and profit growth. We've become more efficient operators as demonstrated by the quarter's strong free cash flow, margin expansion and significant earnings growth. Earnings per share from continued operations was $0.29 for the quarter, $0.02 above the high end of the range of our expectations.

The second highlight was the ability of our European operation to report two consecutive quarters of profitability. Our international operations now contribute almost 30% of Monster Careers revenue and our overseas revenue growth rate continues to significantly outpace North America. We have successfully transported our sales, marketing, and operational expertise and Internet knowledge to Europe and most recently to emerging markets in Asia, and this is really important.

The European help wanted advertising market is nearly as large as the U.S. market, but roughly half of its penetration online. Monster is the only pan-European online recruiter and we have built a strong foothold in both the major markets and secondary markets across Europe.

We saw a slight improvement in market conditions during the quarter and I'm confident we're poised to benefit as the European economy improves over time. European Monster Employment Index reached an all-time high in March as online recruitment activity continued a three-month upward growth trend. The European index has now shown a 24% year-over-year increase, demonstrate the increasingly strong secular shift to online from print advertising, just as we have seen here in the United States.

Yet another noteworthy accomplishment is our increased ownership position in ChinaHR, which is closing the gap to become the number one online recruiter in China. With our investment of an additional $20 million in ChinaHR, we not only increased our ownership, but we also gained a clearer path to control.

China continues to enjoy strong GDP growth and massive job formation. With its large population and high Internet population, China presents a tremendous growth for Monster.

On a final note, I believe that the quarter's strong performance continues to distinguish the Monster franchise from the competition. Our ability to develop our brand both domestically and globally to drive sales and a track record of increasing sales productivity sets us apart from the pack. We have built a global platform from solid and substantial financial growth into the future.

The first quarter showcased both the momentum of our industry and Monster's commitment to industry leadership and innovation, market share growth and increased operating efficiency. We are very pleased and optimistic about our business and continue to confidently execute on our strategic priorities.

Before I turn the call over to Steve Pogorzelski, who is our International Group President, I want to make a comment. We believe that this quarter is foreshadowing all the quarters to come. A while back, we looked and said clearly Internet is here to stay, and recruiting online absolutely, positively is going to be in the future. Therefore, it's a matter of population.

We have 300 million people in the United States. The rest of the world has almost 6 billion. So it's only going to be a matter of time before our revenue and our profits overseas exceed our revenue and profits here in the United States. We don't know when. It's not really important when. But it is going to happen.

And very importantly, we own 100% of all of our overseas operations, with the exception of ChinaHR, where we have a path to control in 2008. So you can expect to see more and more that international is going to have a bigger percentage of revenue and profits. With that Steve, they're all yours.

Steve Pogorzelski

Thank you, Andy. Good morning. As Andy said, Monster international accelerated its top line growth and posted a profit for the quarter. Our confidence in the longer term vision and growth opportunities in Europe and Asia have never been stronger.

The bottom line is that there continues to be tremendous opportunities to leverage Monster North America best practices in our international markets, transfer local innovations across borders, and execute a globally coordinated strategy for profitable long-term growth.

Our number one strategic priority in international is growth. Europe is our most immediate opportunity, and we are successfully executing against four key levers to drive accelerating momentum. They are E-com, sales productivity, marketing, and driving organizational efficiencies.

Turning to E-com, our objective is to fully develop an E-com model which drives sales, leads and eventually creates the incremental margins we've seen in North America. Although Monster Europe is just getting started with E-com, the results are promising. Year-over-year E-com growth doubled, and E-com as a percentage of overall sales increased. Mike [Hinton], formerly with the North America SMB Product Marketing Group, is now leading our European E-com effort and he and his team generated half as much E-com revenue in the first quarter as we did in all of 2005.

Another key European strategy is to increase sales force productivity. Andreas Bartoni, the head of European Sales and his team have focused on sales force productivity as a key, near-term objective in Europe. This focus is paying dividends as field sales productivity as measured by sales per rep increased 40% over Q1 2005, while telesales productivity increased at almost the same rate.

Moreover, the significant investments we made in telesales hiring in 2005 are paying off as the telesales channel experienced organic growth of 82% in the first quarter on a year-over-year basis, which is really a result of our investment in telesales headcount, more tenured and efficient sales force, and the market coverage changes we instituted in Europe in Q1.

Third, we accelerated our marketing spend in Europe in order to increase brand awareness and propel key employer metrics. We spent nearly two-thirds more in marketing in the quarter over the previous year. Based on our portfolio-based approach to investments, over 80% of the spend was in the big four markets of the U.K., France, Germany, and Netherlands, where the immediate revenue opportunities and longer term strategic values are the largest.

Overall our marketing investment delivered, as key seeker and employer metrics showed significant increases on a year-over-year basis. Across Europe, new resumes were up nearly 50%, applies for jobs increased over 90% and resume views more than doubled as adoption of the European resume database begins to take hold.

Finally, we've been relentlessly focusing on creating a more efficient European organization and you can begin to see this reflected in our margins. We are making steady progress in the telesales migration from 18 call centers to four call centers. We have centralized key functions such as sales operations, E-com and marketing while planning shared services for key back office functions.

Our goal is to speed up execution, create greater strategic flexibility, leverage best practices and develop an operating platform which will scale the margin levels that match our domestic business over time.

Turning to Asia Pacific, our mantra is to invest in growth. With unemployment at 4% in South Korea and continued rapid GDP growth in the tiger economies, as well as powerful job formation dynamics in India and China, it is imperative that we invest in the early stages of the development of online recruiting.

Some examples of manifestation of these efforts can be found at Monster India. In February, Monster India launched a new product and technology platform and initiated a new advertising campaign. The initial results of these efforts are very encouraging. Unique visitors in March increased over 200% from the average of the previous three months. Resume acquisition and job applications also increased exponentially. At the same time, [Aru Sadanki] and the Monster India sales teams, having presales force productivity and are leveraging our product and marketing efforts with strong year-over-year sales increases.

Telesales order volume in Q1 increased by over 200% versus Q1 2005 as our 2005 investments in this function began to materialize. Job creation continues to generate strong results with accelerating year-over-year sales increases and healthy profit margins. In the upcoming months we will be combining Jobs Korea's innovative E-com model with Monster's telesales competencies. It now appears that the value and strategic benefit of that 2005 acquisition are even better than we had anticipated. In fact, [Wasu Kim], the founder of Jobs Korea and his team will be leading the efforts to launch organic versions of Monster in emerging markets by iterating the Jobs Korea E-com model.

Turning to China, I'm impressed with the speed and tenacity of our leadership team. The Chinese team has made significant progress in rapidly implementing the telesales competencies, as well as leveraging the best practices of the Monster hunter/farmer model. ChinaHR is significantly increasing its advertising budget in 3006 in order to generate greater brand awareness, increase job seeker traffic and acquire more resumes. The marketing KPIs are promising and the best is yet to come as ChinaHR launches its first ever television campaign in the second quarter.

Our internal estimates combined with third-party research indicate that the China online recruitment market will grow approximately 60% annually in 2006 while ChinaHR should grow faster than the overall market. But it it's really the long-term opportunity in China that we are focused on and that we will continue to invest in the China market during the early phases of this tremendous opportunity.

In closing, our global footprint allows us to define the online recruitment space around the world and we are focused internationally on leveraging our competitive advantages. As we size up this global opportunity, we believe that Monster's core competitive advantages include strong and growing global brand awareness; unique operating experience in creating scalable online recruiting business models, and investing appropriately during these various stages of adoption. Tremendous skill in sales and sales management, including the track record of driving sales force productivity and efficiency; proven product and specialized technology expertise, especially in E-com, and growing a multinational customer base that we alone are able to serve on a global basis. With that said, now I'd like to turn the call over to Lanny Baker.

Lanny Baker

Thanks, Steve. Monster Worldwide's first quarter financial performance was outstanding. Relative to our expectations, we achieved stronger revenue growth at Monster with broad momentum in North America and International in careers and in Internet advertising. Based upon first quarter results and current business momentum, we now expect to deliver stronger full year results than we originally contemplated.

When we peel back the layers of Monster's first quarter results, we're pleased to report that many of our strategic actions and investments of the recent past have positioned Monster to benefit significantly -- and in some cases uniquely -- from secular forces surrounding us. This pattern of well informed and opportunistic investments, followed by improved financial performance and strengthened competitive positioning is essential to Monster's formula for sustained increases in shareholder value over the long term.

Our strategic and investment priorities are rapid global revenue growth, unrelenting local market development, and extension of Monster's brand leadership. In the process, we will seek to balance aggressive investments aimed at maximizing Monster's long-term potential with a commitment to deliver strong and consistent bottom line results.

We achieved both of these goals in the first quarter, a quarter in which the financial highlights include: overall revenue growth of 28% year to year, fueled by organic revenue growth of 34% at Monster. Overseas Monster's organic revenue growth accelerated to 51% year to year. Overall operating margins and EBITDA margins expanded by 350 basis points from year ago levels. Free cash flow nearly doubled year-over-year, reaching $65 million for the quarter and an impress in 90% conversion rate against first quarter EBITDA. Finally, our net cash position climbed to $362 million at quarter's end, even as we made several important investments for the future.

With this strong start to the year, we are well positioned to extend our internal investment activity while also committing to higher full-year financial targets. Before turning to the details let me point out three housekeeping items. First, beginning with the first quarter of 2006 we have a new reporting format. We now present three operating segments within Monster: Careers North America, Careers International, and Internet advertising and fees.

Revenue in the two careers segments is predominantly earned from the placement of job postings on our website and access to our resume database. Revenue in the Internet advertising and fees segment is derived from the display of general advertisements across our network of sites including Monster.com as well as from lead generation in premium services. Currently almost all of the Internet advertising and fees revenue is generated within the U.S., but with important contributions from Fast Web, Military Advantage, Monster Track and Tickle.

The new reporting format not only better aligns our external reporting with the way we manage the business internally, but it also provides a clearer window into the specific revenue growth and profitability dynamics within the Monster business.

Second as we announced in early March, we sold our Ad COMMS business in the Asia Pacific region and accordingly, we reclassified the results of that business to discontinued operations. The first quarter 2006 discontinued operations figure also includes a book gain of $4.8 million as a direct result of that transaction.

We launched a new equity compensation program during the first quarter, and as a result we began to occur non-cash expenses associated with the restricted stock program. However, because we initiated the program later in the quarter than we expected, the actual expense was approximately $700,000; one-third of what we previously discussed. Starting with the second quarter, we will expense a full quarter's worth of the RSU program, about $2 million pre-tax.

Now, turning to the details of what was a solid start to the year, total revenue for the first quarter of 2006 grew 28% year to year to $292 million, which was about $7 million greater than our outlook for the quarter. Monster revenue grew 36% in the quarter and was about 5% higher than our outlook. A healthy job market in the U.S. contributed to the out-performance, but Monster's upside was well balanced across all regions, sales channels, and major service lines in the quarter.

Total operating expenses increased 22% year-over-year in the first quarter; marketing spending was up 37% year to year on a high 20% increase North America and a nearly 75% increase overseas. The other expense categories grew more slowly, and we took advantage of that operating leverage to boost marketing spending while simultaneously achieving higher profit margins.

Overall operating income rose 55% and operating income before depreciation and amortization increased 49% to $70 million for the quarter. Our EBITDA margin was 24.1% in the first quarter and overall profitability was slightly higher than we anticipated, largely due to the strength of the Monster top line.

Turning now to Monster specifically, total revenue of $257 million was $13 million higher than the upper end of our guidance for the quarter. With just over half of that upside coming from Careers North America, slightly less from Careers International, and 10% originating from the Internet advertising and fees business.

On an organic basis, Monster's revenue growth rate improved to 34% year to year in the first quarter. Organic revenue growth excluded a $7 million benefit from acquisitions, partially offset by a $3 million adverse impact from foreign currency exchange rates.

Monster's EBITDA margin was 29.6% in the quarter, an increase of just over two points year-over-year, with slightly more than half of the profitability improvement coming from our largest variable expense category, employee-related costs. Sales force productivity was a key factor here.

At the end of the first quarter Monster's deferred revenue balance was $343 million, a $16 million increase over December 2005 levels, and more than 40% higher than a year ago. We are leverage a growing list of new strategic partnerships and vendor alliances to expand our value proposition for enterprise accounts, which is leading to deeper account penetration, improved pricing, and growing visibility into the quarters ahead.

Now let's delve a little bit deeper into the fundamentals and the results of Monster's three segments. The careers business in North America had revenue of $160 million, up 29% year to year, matching the growth rate we achieved in Careers North America for the full year '05. With the year earlier revenue base now larger, we had expected to see some moderation in North American revenue growth rates in the first quarter. However, an improved domestic labor market continued online migration and Monster's successful execution in enterprise and SMB combined to offset that outlook.

Our vertical focus on the staffing sector has also paid off in terms of continued strong revenue growth from what are already some of our largest customers. Monster's revenue growth rate in Careers North America compares very favorably to Interactive Advertising Bureau's estimate of 20% growth for online classified advertising; and, in fact, Careers North America's growth rate is in the same healthy 30% range that the IAB reported for overall Internet advertising recently.

Meanwhile, Monster also continues to increase its market share within the broad recruitment advertising market in the U.S. Where newspapers saw mid single-digit growth in print help wanted revenue and low double-digit growth when their associated online efforts are included in the comparison for the quarter. The secular force of online migration explains a large portion of Monster's growth; but beyond that we're very happy to see Monster's investments and strategic decisions adding to the momentum.

For instance, as the labor market gradually trended upward last year, Monster increased its seeker advertising and added a specific call to action inviting seekers to post resumes with Monster. We also redesigned the site to draw in more resumes. In the last six months Monster has added nearly 5 million new resumes within North America, enhancing both the size and freshness of this unique hiring resource.

This turned out to be good timing and a rewarding set of investments as a tighter job market in which attractive candidates become harder to find is now super charging the resume database side of our business. Resume sales in the first quarter rose roughly 40% year-over-year, well ahead of Monster's overall growth rate at the U.S.

Meanwhile, our investments in the E-com channel continued to drive strong revenue growth among smaller U.S. businesses, while generating attractive returns for Monster despite smaller average order sizes. In the first quarter, one-fifth of our marketing spend in the U.S. was aimed directly at E-com, and we've maintained a 2:1 revenue return on that spend by continually refining and optimizing our online buys.

Speaking of returns, E-com brought in more than 15,000 new accounts in the first quarter, and revenue for the highly profitable channel was up well over 40% year to year. E-com is currently 20% of careers revenue in North America.

With the growing contribution of e-com, a 15% year-to-year increase in revenue per employee, and ongoing efforts to improve efficiency, the EBITDA margin in Careers North America was 37% in the first quarter, about three points higher year to year. The incremental EBITDA margin at Monster Careers North America was 46% in the first quarter. We continue to see long-term margin growth potential in the core career business in North America. At the same time we're focused on making appropriate investments in sales staff, seeker traffic, products, and our local market presence.

After 12 months of relatively modest head count growth we're moving into an expansion mode again, capitalizing on the lower cost structure afforded by our new Tempe sales center to add capacity efficiently. Accordingly, we do not expect incremental profitability to trend much higher in North America, at least in the near term.

Shifting to the international side of Monster Careers, The broad themes of well placed investments and opportunistic strategic positioning apply equally well, Over the past three years Monster has invested considerable time and capital positioning itself and we're pleased to see the international potential now becoming reality.

The organic revenue growth in Careers International was 51% year to year in the first quarter, exceeding both our own expectations and the 46% growth rate achieved in the fourth quarter; which itself was an improvement from 40% in the third quarter.

Overseas, the secular momentum behind online recruit meant is building, as the growth curve could be approaching a sweet spot. We achieved 46% organic revenue growth in Europe in the quarter, and India and all of Asia were in the 65% to 75% range.

In short, our international operations are off to a great start, and we'll actively pursue ways to extend our advantages overseas. E-commerce is a prime example. We know from our experience in North American that the e-commerce channel can act as a handsome complement to our field and telesales efforts, particularly in serving small businesses profitably.

Accordingly, we're emphasizing e-com earlier in the growth cycle in Europe, and e-com revenue, which now accounts for 5% in Europe. This will allow our sales forces to focus more of their effort on larger accounts which have greater average order sizes and bigger recruitment wallet. So the impact of investing in e-com extends beyond that channel alone.

In tandem with the first quarter's impressive revenue performance, Monster International also delivered a 5.5 point improvement in profit margin compared to the first quarter of '05, recording an 8% EBITDA margin and $5 million in EBITDA for the first quarter. We are very encouraged by these productivity improvements which are central to our operating plans overseas. In particular, comparing the first quarter '06 with the same quarter of '05, revenue per employee in Europe rose 10% year to year and revenue per sales rep increased 16%. Productivity gains like these, especially against the significant resources we've invested in our sales force have the power to significantly leverage our profit growth overseas in the years ahead.

Reorganization and training contributed to the improved sales force productivity in Europe, as did an increase in marketing spending, that's lifting brand awareness, driving website traffic, and improving the results we deliver to our clients. As Steve mentioned resumes, My Monster accounts, job views, and job postings are all in the vicinity of 50% higher than a year ago, thanks in part to our stepped up marketing spend. Job applies by Monster Europe are nearly double their year-ago levels.

We focused on these essential site metrics, because they directly link seeker and employer results, which in turn drive Monster's ability to grow and gain market share. In the first quarter Careers International converted 18% of its year-to-year revenue increase into additional EBITDA, even while ramping marketing. The incremental profitability in International was the best we've seen in over a year, and marks a turning point. We expect International to remain profitable and we continue to target mid to high single-digit margins for the segment this year.

Moving beyond the core Careers business, we're optimistic about the opportunity to extend Monster's business model horizontally, and to tap into the broader Internet advertising market. Monster's network traffic typically ranks in the Top 20 websites in the U.S. according to third-party research. Most of Monster's visitors come at important junctures in their lives, looking for a job or a scholarship, for instance. They're often willing to share detailed and accurate personal information in the process.

We believe that these two attributes, a large audience and deep and relevant data, equip Monster to offer compelling advertising solutions well beyond the Careers category, and recent results support that view. Monster's Internet advertising and fees revenue rose 31% year-to-year, propelled by higher rates associated with lead generation, and increased sell-through of display advertising inventory.

During the first quarter of 2006, 39 of the 100 largest advertisers in the U.S. advertised on Monster properties. While our penetration of the largest advertisers has doubled in the past 18 months, we believe we have considerable room to grow within the category. The Internet advertising fees business, in addition to offering a degree of diversification and balance to our business model, has attractive profitability characteristics similar to those in our careers business.

The Internet and advertising fees segment generated 17% of our total EBITDA in the first quarter, growing 39% year-to-year, and representing a 36% margin. We will continue to invest in this part of the Monster franchise, looking for attractive ways to broaden our audience base, and add new sources of high quality lead generation volume. We are adding new content features, enhancing our inventory, and expanding our ad sales force and we plan to project this part of the Monster formula overseas as well, on later this year.

Turning to TMP Ad COMM, EBITDA of 4 million was flat year-to-year in the first quarter, despite an 11% decline in overall revenue. A coordinated shift in emphasis towards higher margin services, such as interactive design and ROI measurement, has helped the profitability of Ad COMM, however reduced hiring activity by the public sector in the U.K., which represents a significant portion of our customer base is creating an ongoing headwind for the segment.

Moving to the balance sheet, Net cash and marketable securities of $362 million at the end of the quarter is $89 million higher, than at the end of 2005. Our financial position was improved by $65 million in free cash flow, and $77 million in proceeds from stock options and associated tax benefits. We invested a portion of this additional cash into three transactions that we believe will generate attractive returns for investors.

First, we repurchased $8.5 million worth of Monster stock at average price of $47 per share. Second, we entered into a $23 million structured share repurchase transaction, that will mature near mid-year 2006. At that time, depending on our stock price, we will either have repurchased a fixed number of shares, or we will receive our initial $23 million cash, plus a cash premium. Third, we increased our ownership interest in ChinaHR, spending $20 million to lift our stake, from 40% to just under 45%.

Given China's ground swell of job formation, and the spreading embrace of the Internet, we believe that our investments in ChinaHR, and close cooperation between our management teams, will be critical sources of long-term growth for Monster, and new found value for shareholders.

Capital spending was $11 million in the first quarter, equating to about 4% of revenue, which is roughly where we expect to come out for 2006. Finally the weighted average share count was 130.6 million in the first quarter, a 6% increase year-to-year. Half of the 7 million share increase reflects the effect of a higher average stock price used in the Treasury method, and the other half came from stock option exercises during the past year.

Turning now to our business outlook, we're introducing an outlook range for the second quarter, and we are updating and increasing our full year outlook ranges as well. Starting with the second quarter, we expect total Company revenue to be between $293 million and $300 million, an increase of 26% year-to-year at the midpoint of the range. For Monster, we expect second quarter revenue of $260 million to $265 million, an increase of 32% at the midpoint of the range.

At the anticipated revenue levels for the second quarter, we expect to continue the trend of steady year-to-year margin expansion, with total Company operating margins up close to 3 points year-to-year. At Monster, both the operating margin and EBITDA margin are likely to show slight sequential improvement, and we expect to achieve nearly 2 points of year-over-year margin improvement at Monster in the second quarter. International should contribute to the improved overall margin comparison again in the second quarter.

Marketing spending is likely to be up by a few million dollars sequentially, and we expect marketing as a percentage of Monster revenue, to be about the same in the second quarter as it was in the first. Below the operating line we anticipate $2 million to $3 million in interest income for the quarter, and tax rate should return to the 35% rate we target for the year. Our share of ChinaHR's losses will be slightly larger, given our increased stake in the Company, and we envision an equity loss in the neighborhood of $2 million for the second quarter.

Putting the pieces together, we expect Monster Worldwide to earn between $0.29 and $0.30 per share from continuing operations in the second quarter 2006 and earnings growth of 40% year-to-year at the midpoint.

Moving over to the full year outlook, we now expect full year 2006 revenue in a range of $1.18 billion $1.22 billion, which equates to total Company revenue growth of 24% year-to-year at the midpoint. For Monster, we are increasing our full year 2006 revenue outlook, to a new range of $1.045 billion to $1.075 million, up 30% year-to-year at the midpoint.

The prior outlook range reflected a 25% revenue growth outlook for Monster in 2006, and the first quarter's strong performance, coupled with our ongoing investments to drive future growth, now encourage us to aim higher for the year. With a higher full year revenue outlook we see opportunity to increase our internal investment activity, while also delivering higher bottom line results.

Within Careers North America, we expect EBITDA margins to improve over 2005, remaining in the upper 30% range, as we invest in people, local market penetration, and marketing.

On the International side of Careers, we continue to target mid to high single-digit profit margins for the year, reaping the benefit of increased revenue scale and greater operating efficiency, while still investing aggressively to drive growth in 2007 and beyond.

Monster's incremental EBITDA margin for 2006 is expected to be consistent with our 30 to 50% long-term target range, with North America and Internet advertising generating slightly stronger incremental margins this year than International.

We expect the total Company operating margin to be in the low 20% for 2006. Interest income is expected to be roughly $12 million or $13 million for the year, with an overall tax rate of about 35%. Finally, we anticipate an equity loss from ChinaHR of $7 million to 8 million for 2006.

Summing up the pieces of our full-year outlook, we now anticipate earnings from continuing operations of $1.25 to $1.29 per share for 2006, an increase of 38% year-over-year at the midpoint of the range. We're encouraged that Monster's first quarter results were so strong, and we're pleased to be in the position we are, with increased financial expectations for 2006, and a wide array of promising opportunities still ahead.

In conclusion, our first quarter results were excellent. And, once again, reflect the strong and well-balanced revenue growth, steady expansion in profit margins, and robust free cash flow performance that define our financial objectives. We're particularly pleased to see our International operations building upon their already strong revenue momentum, while simultaneously producing a sustainable improvement in profitability.

Underneath all of this, we are diligently focused on delivering consistent high quality results for our employer customers and for job seekers alike. We have big investment plans for our products, our sales channel, and our brand in 2006, all of which aim at strengthening Monster's leadership position in the marketplace. Fortunately, an attractive cash generating business model, and our persistent pursuit of increased operating efficiency, provide ample resources to invest aggressively, while achieving high quality bottom line results at the same time. With that, we'll open up the call for questions. Thank you.

Question-and-Answer Session

(Operator Instructions) Your first question comes from Christa Quarles with Thomas Weisel Partners.

Christa Quarles - Thomas Weisel Partners

Hi. Couple questions. First, could you give a little bit more color on the deferred, particularly domestic versus international? Is the growth sort of similar, pro rata-wise anyway, similar to the growth that we're seeing on the regular revenue line? At the end there, Lanny, you said that international incremental margins would be slightly lower than North America.

In looking at North America, they're sort of mid-40s this quarter. I think international was 18. So I was just wondering if that means that the international incremental margins would ramp slightly, given that obviously you had expenses related to India and so forth. Thanks.

Lanny Baker

Sure. On the deferred revenue, yes, I think the growth rates in deferred revenue across the various pieces are fairly similar to the growth rates that we're seeing in revenue between North America, Europe, even Asia, and the Internet advertising business. So it's a pretty consistent picture of strong numbers across the board.

Turning to your question about the incremental margins, you know, I think pretty clearly we're at an earlier stage of development in the international businesses with more investment opportunity right now right in front of us. We have turned the corner, we're very happy with the incremental profitability in the first quarter, and it will continue to be somewhat lower than the overall average.

Christa Quarles - Thomas Weisel Partners

Actually could you give us a little bit more country color also in terms of the international growth? I think it sounded like everything was strong, but I don't know if you could highlight Germany and France specifically.

Lanny Baker

Well, we're sort of going back between Steve and I. On a country by country basis, it's pretty strong all across the board. The German economy is looking a little bit better. France is having its issues with labor right now, but we're doing very well in that market.

Steve Pogorzelski

I think, Christa, the key call for Europe, despite a slightly strengthening economy in the U.K. in the public sector slow down, is that our Monster U.K. business really had a breakout quarter. We increased sales 70% year-over-year, and we still had strong growth in the other big four markets, but the U.K. is really a highlight for us.

We also had strong growth in some of the secondary markets in Austria, Austria and Italy for instance, but overall the growth in Europe was rather consistent across all markets despite some of the differences in economic environments as our European leadership team, is simply executing better than the economy.

Christa Quarles - Thomas Weisel Partners

Thank you. That's helpful.

Operator

Your next question comes from Peter Appert with Goldman Sachs.

Peter Appert - Goldman Sachs

Hi. Thanks. Great quarter. Congratulations. The Internet advertising market opportunity, how do you scale that, and how big do you think, or what do you think the upside in margins could be from that?

Lanny Baker

Well, you know, with a site that's got the traffic that we do, we think there's tremendous opportunity. Now, of course, a lot of the traffic is fairly purposely directed in the Careers area, but this is an area we're going to focus on, and try to build over time. Right now it's a relatively small percentage of the total revenue opportunity.

We think there's really not much going on in our Internet advertising business outside the United States. We have a lot of traffic overseas, and Internet advertising is growing overseas as well, so we're very optimistic about the long term growth in that business.

From a profitability characteristic it will have I think fairly similar profitability on the incremental revenue growth, to what you see across many other Internet advertising franchises, which is handsome and not too dissimilar from what we see in the Monster business.

Peter Appert - Goldman Sachs

But you're not going to be pinned down, because I was thinking relative to the traffic you're generating, conceivably that line could be as big as your North American career line.

Lanny Baker

We're not going to be pinned down right now.

Peter Appert - Goldman Sachs

Excellent. Lastly, just in terms of how you're thinking about cash flow allocation, obviously you're buying back little bit of stock here. Is the expectation that maybe that could increase over time?

Lanny Baker

Well, we, as you know, we're hoping to buy back a bit more in the second quarter with the structured transaction that we did, which doesn't preclude us from buying in the open market at the same time. As we point out in the past, the size of our cash balances relative to the size of our business are about half the liquidity backstop, if you want to look at it that way, that some other major Internet companies currently possess. So while we don't see any big immediate need for the cash, we are looking to acquire the remainder of ChinaHR down the road, and I think you'll see us continue with what we've allocating that capital as we have in the past.

Peter Appert - Goldman Sachs

Okay. On the ChinaHR specifically, the valuation obviously took a huge step up from what you paid for your initial stake. Is there any formula set, in terms of what you might have to pay to buy the rest of it?

Lanny Baker

So our total investment in ChinaHR is roughly $70 million for a 45% stake that we now hold. The most recent investment, you're right, it's $20 million or just under 5%, would actually value the company at close to $450 million.

But as Andy indicated, we did attain some strategically valuable improvements in our path toward control of ChinaHR in the latest round, and that's partly reflected in the valuation. But all that said, asset values for leading growth properties in the Internet and China command prices that match the long-term opportunity. We fundamentally believe that China represents an enormous opportunity for the long term.

Peter Appert - Goldman Sachs

You can't be specific in terms of these advantages you got?

Lanny Baker

No.

Peter Appert - Goldman Sachs

Okay. Thanks.

Operator

Your next question comes from John Janedis with Banc of America Securities.

John Janedis - Banc of America Securities

Hi, thank you, good morning. Back on the U.K. Can you give us a sense of the shares gains that you're seeing versus some of the other online players? There's been some mixed commentary about the overall help wanted market. Do you think the industry there is near or past bottom? Thanks.

Steve Pogorzelski

From a share standpoint, because most of our competitors in the U.K. are not publicly traded, it's difficult to get a very detailed share breakdown. We believe that we are picking up share on the revenue side, and also significantly, given the marketing metrics and results we've seen with the advent of our new ad campaign in Q1, we are definitely picking up market share and brand awareness amongst consumers, which ultimately propels our business forward.

In terms of where we are in the troth of the U.K. recruitment advertising market, we're beginning to see a bit of a lift, although you've got to keep in mind one thing: that Monster U.K. is not predicated on public sector hiring, while the recruitment advertising business is.

If the public sector continues to decline in the U.K., Monster U.K. has limited exposure to it, and we also see it as a long-term opportunity, as our better value proposition will help move some of those public sector companies away from recruitment advertising onto online in the future.

John Janedis - Banc of America Securities

Quickly on ChinaHR, I'm sorry if I missed this, but did you actually give any kind of timeframe, in terms of that path to control?

Steve Pogorzelski

Yes, it is early 2008.

John Janedis - Banc of America Securities

Thank you.

Operator

Your next question comes from Lisa Monaco with Morgan Stanley.

Lisa Monaco - Morgan Stanley

Hi, Lanny. Could you just elaborate on your comments about you ramping up hiring again U.S. versus International? If you could just give us some color on that, as well as how you're thinking about marketing and promotion spend in the U.S. versus International. Thanks.

Lanny Baker

Sure, Lisa. As you know, growth is really the top-line priority for the Company, and expanding our sales force is a key facet of that strategy. We've opened a new telesales center in Arizona that has shown some great early results, in terms of productivity, in terms of the availability of labor, the cost structure of that location, and we're going to continue to press forward with it. Those assumptions are well reflected in everything we've said here today, and not any major break with the past.

Lisa Monaco - Morgan Stanley

Can you give specifics on what you think head count will be up by the end of the year?

Lanny Baker

For the whole business, for the Company as a whole, it will increase by a good bit, but part of that is in Asia. You have to be careful because the costs associated with employees in Asia are much lower than they are in North America. So that creates a bit of a skew. We added, I think, 80 salespeople in the first quarter in North America.

We won't add that many each quarter going forward, but we'll continue some consistent growth in the U.S., and really, actually all of the growth in employees in the first quarter of 2006 compared to December was in the sales people.

Lisa Monaco - Morgan Stanley

How should we think about marketing and promotion spend for the remaining three quarters?

Lanny Baker

You know, we've been in this range of 24% to 25% of the Monster revenue going into marketing. That's probably the range that I think we will be at over time. To the extent that we see opportunities to be a bit more aggressive, we may take those.

But remember, what's going on in there is very steep increases, sort of two to three times as much growth right now in the overseas marketing effort, to get the kind of metrics results that Steve was talking about, which ultimately lead to the revenue growth that we've shown in the quarter. So there's a bit of a shift within the marketing spend a little bit more overseas.

Lisa Monaco - Morgan Stanley

Great. Thanks.

Operator

Your next question comes from Jeetil Patel with Deutsche Bank.

Jeetil Patel - Deutsche Bank

First of all, on the E-commerce business you have added 15,000 new customers, but if you look at the math, it looks like you had pretty good growth or frequency among your existing customers. Is that a trend that you've been noticing of late? That you are starting to see a lot of frequency, or a lot of the E-com accounts coming back, and starting to ramp back up in terms of hiring, and coming back to you? Is that kind of an interesting trend that you're seeing in the business, or am I doing my math wrong?

Second, on the Internet advertising side, can you give us a sense of what it is on Monster.com versus off-Monster on the other sites, and kind of how do you philosophically think about advertising inside the Monster.com environment, which is I would think more dedicated to Career? Putting in display doesn't seem -- I guess I am just trying to figure that out.

Lanny Baker

Sure. On the, I'll start with the Internet advertising discussion, then I'll turn it over for discussion on the progress in the E-com. The Internet advertising, I think the best way to break that down, Jeetil, probably not so much by the properties, as it is by the kind of service that we're selling.

About half of the revenue there is lead generation revenue, which is not coming on the Monster sites. About a quarter of the revenue is display advertising, and some of that does run on the Monster site, and philosophically we feel like in this day and age, a bit of well targeted, relevant advertising in and amongst the Careers experience at Monster is absolutely reasonable, and something that frankly, our seekers have come to expect as they use the Internet today.

The last piece of revenue in that business is the fees side, which is coming from consumers and from institutions who pay us for various services. Doug Klinger, do you want to talk about the E-com?

Doug Klinger

Yes. Just in terms of E-com we had in first quarter our best quarter ever for E-com sales, and as a percentage of the overall revenue E-com is increasing, and obviously this is a high margin channel for us, and one where we can experience more immediate revenue recognition.

In terms of renewal rate, about two-thirds of the transactions we're doing today are coming from E-com, and, you know, a majority of our customers use the Internet channel for some percentage of their purchase, some of them also choose to deal with telephone-based sales people, as well as field-based sales people.

In terms of renewal rates we see renewal rates on E-com, which I think is your question, at rates that are around or slightly lower than what we get in our small to medium sized business operations, where we're working through a telesales rep. So we're seeing pretty high renewal rates there. We're seeing the ability to drive price, particularly in the bigger markets, and just general increase in overall increase on the part of existing customers in using the Internet for some or all of their transactions.

Just a quick comment on the advertising front. As we look at Monster.com and the site as an employment site from a consumer standpoint, there's opportunities for consumers to view employment advertising, which many of our large postings and resume customers are increasingly interested in doing on the site. That's obviously in the interest of the consumers that are coming to the site, to see more information about the kind of employers who are posting there.

There's also obviously opportunity for job-related types of advertising services and products that would be of interest to people coming to look for jobs. So those are the first two places we go, then you get into the general advertising content like you see on a lot of other sites. But I think the tolerance from the consumers from what we can tell for jobs-related, as well as non-jobs related advertising is pretty high, and we've only just begun to tap that opportunity.

Jeetil Patel - Deutsche Bank

So basically the higher renewal rates in telesales, should give you a bit more leverage on spending on the new customer acquisition side, I would assume. I guess broadly, if it's a pretty tight labor market out there, can you just talk about the impact on the business between listings and database? Does it matter to you which one from a margin or pricing standpoint is much more favorable, depending on where the business shifts in a tighter market out there today?

Doug Klinger

You know, from a margin perspective, there really isn't any difference. The key is having available that unique resource in the resume database, at the time when the employers need it most. We feel like the investments we've made last year and going back years and years, have really positioned us primarily and uniquely, to some extent, for this current environment.

There's not any big difference from a margin perspective. It starts to become a little more central to the growth. In terms of the renewal rates and profitability, broadly speaking it's a fairly simple game of reinvesting the increasing profitability from your long-time customers into growing new customers faster and faster.

Jeetil Patel - Deutsche Bank

Thank you.

Operator

Your next question comes from Mark Mahaney with Citigroup.

Mark Mahaney

Great. Thank you. I wanted to beat Bill Morrison to the punch, and ask about European margins. You just clipped around 8% margins in the March quarter with very aggressive step up marketing spend. Are there any particular reasons why margins could come down between now and the balance of the year? I know you repeated your guidance for mid to high single-digit margins.

Given that there's weak seasonality normally in the March quarter, in terms of the margin structure, why shouldn't margins be flat to up from here? Or should we think about new investments you'll make in Asia, that would maybe offset some of the margin growth you're seeing in Europe? Thank you very much.

Lanny Baker

Sure, Mark. The margins across the year, we're not going to get into quarter-by-quarter breakdown, but if you look at the third quarter last year, in 2005, you'd note that we did see some seasonal decline in revenue between the first and second quarter levels, and the third quarter levels.

Outside of that we don't see any big factors that will distort it but remember, it's a relatively thin margin, and a few million dollars of marketing spending, or hiring here or there can make it bounce around. Don't be too precise. Stick with our full-year goal.

Andrew McKelvey

What I would add to that, as we've said, I think more than a couple of times, Europe is at the beginning. And it's going to be in our mind, a very exciting ride over the next couple of years. We will be in the growth mode. We will meet our commitments in margin, but we are going to exploit all the growth opportunities we can in those markets internationally.

Mark Mahaney

One quick follow-on in terms of the step-up in marketing spend in Europe. Were there new marketing channels that you are using? Is it just more in each of the channels that you're already using? Is there any material shift over, for example, to search advertising in Europe, or in any one particular geographic market? Thank you.

Steve Pogorzelski

Well, because we're doing advertising Europe across 18 countries, it is very difficult to answer that question with a high level of specificity, because each marketing plan is unique. What we've done in the big four markets in Europe in the first quarter, is focus more of our attention in two key areas, and shifted dollars accordingly. Number one is to continue to build our brand. We're very satisfied with the results we've seen in key metrics and KPIs. Number two, is to invest more in E-com to continue to build that channel.

Mark Mahaney

Thank you very much.

Operator

Your final question comes from Mark Marcon with R. W. Baird.

Mark Marcon - Robert W. Baird & Co.

Good morning. First of all, Andy, welcome back. Nice to have you back in the shop. First for Lanny, a lot of the employment-related companies and recruiting-related companies that I follow, experienced strengthening as the quarter progressed with an increased level of hiring activity. Is that something that you ended up seeing across Monster?

Lanny Baker

Mark, I think it was pretty consistent from sort of late in the fourth quarter through most of the first quarter. It feels like it's been an improving job market. The quarter did end well, but I think it's been, I'd characterize it as pretty consistent with what we've seen for awhile now.

Mark Marcon - Robert W. Baird & Co.

With regards to International, can you give us a sense for how much the big four comprises of international at this point? In particular, Asia is growing a little bit faster, at what point does that start becoming meaningful? Then a couple of quick follow-ups on that.

Steve Pogorzelski

Well, I don't think we're going to give you specifics on what percentage of the big four comprise International, but it is a healthy percentage. But moreover, we're seeing very strong growth rates in the secondary markets within Europe, and also very strong growth rates, and Korea is making a significant impact on our business. The Job Korea model is exceeding our expectations, continues to grow at very high accelerated revenue growth rates, and we expect that to continue throughout the year in that part of the world in Korea.

India is also growing rather rapidly. So what you'll see is the mix, and the importance of the big four to our overall international revenues, will continue to shift on a quarter-by-quarter basis.

Mark Marcon - Robert W. Baird & Co.

Okay. Then two final questions. First of all, on the pricing front, can you give us a sense for what Monster pricing did on an overall basis in North America? How are you looking at pricing from an international perspective given its higher levels? How do you think about that with regard to long-term market penetration? Finally, Steve, on the call center consolidation, when do you expect that will occur by? Thanks.

Steve Pogorzelski

Let me take the pricing and call center, then we'll go over to Doug to talk about pricing North America. On an international basis price increases have either been planned or implemented in a high percentage of our European and Asia Pac sites.

At the present time, we're very satisfied with the results. We're seeing elasticity in our ability to raise prices in both jobs and revenues, and we're not going to get any more specific at this point in time. Although we continue to believe that we have the ability based on our growing brands to continue to increase price. And that will drive our profits.

From a call center perspective, depends on what part of Europe we're seeing a migration, for instance, in the U.K. and Ireland, virtually all of our telesales now are in Glasgow. Our central European operations have moved a good percentage of their people to Hamburg.

Depending on labor laws and also the strength of some of the call centers that we do have in existing markets, it will take another year or year-and-a-half to move everybody into all those different call centers. But we're doing this in an appropriate manner for the benefit of our people and our customers, as well as our margins.

Doug Klinger

Okay. In the U.S. in particular we talked about driving price increases in the 6% range or so, and we're seeing that kind of pricing stick both on the jobs front, as well as for our resume business, reflecting I think growth and overall demand, and increasing competition for talent.

We're also driving at continuing to drive at local job pricing, fully rolling out as we get into the summer, and we're seeing some immediate benefit, in terms of our ability to differentiate in the smaller markets, as well as price up, where we've got pricing power in the larger markets. Overall, good receptivity to the pricing strategy, we're realizing the benefits we wanted to see, and it's now flowing through earnings.

Mark Marcon - Robert W. Baird & Co.

Terrific. Thank you.

Operator

This concludes the Q&A portion of today's call. I will now turn the call over to Mr. Bob Jones for closing remarks.

Bob Jones

Once again, thank you for joining us this morning. To listen to the replay of this call, please dial 1-800-642-1687. ID number is 7639953. Or please feel free to call me any time, 212-351-7032, or Lanny, 212-351-7005, with any further questions. Thank you once again.

Operator

This concludes today's Monster Worldwide first quarter 2006 earnings results conference call. You may now disconnect.

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