HeadHunter Group PLC Announces Third Quarter 2020 Financial Results
11/20/2020 - 06:00 AM
MOSCOW, Russia, Nov. 20, 2020 (GLOBE NEWSWIRE) -- HeadHunter Group PLC (Nasdaq: HHR, MOEX: HHRU) announced today its financial results for the quarter ended September 30, 2020. As used below, references to “we,” “our,” “us” or the “Company” or similar terms shall mean HeadHunter Group PLC.
Third Quarter 2020 Financial and Operational Highlights
(in millions of RUB(1) and USD(2) ) Three months ended September 30, 2020 Three months ended September 30, 2019 Change (3) Three months ended September 30, 2020 RUB RUB USD (4) Revenue 2,308 2,142 7.7% 29.0 Russia Segment Revenue 2,165 1,984 9.1% 27.2 Net Income 585 571 2.6% 7.3 Net Income Margin, % 25.4% 26.6% (1.3) ppts Adjusted EBITDA(5) 1,296 1,145 13.2% 16.3 Adjusted EBITDA Margin, %(5) 56.1% 53.5% 2.7 ppts Adjusted Net Income(5) 856 732 17.0% 10.7 Adjusted Net Income Margin, %(5) 37.1% 34.2% 2.9 ppts
(1) “RUB” or “₽” denote Russian Ruble throughout this release. (2) “USD” or “$” denote U.S. Dollar throughout this release. (3) Percentage movements and certain other figures in this release may not recalculate exactly due to rounding. This is because percentages and/or figures contained herein are calculated based on actual numbers and not the rounded numbers presented. (4) Dollar translations are included solely for the convenience of the reader and were calculated at the exchange rate quoted by the Central Bank of Russia as of September 30, 2020 (RUB 79.6845 to USD 1). (5) Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income and Adjusted Net Income Margin are non-IFRS measures. See “Use of Non-IFRS Financial Measures” elsewhere in this release for a description of these measures and a reconciliation to the nearest IFRS measure.
Revenue is up 7.7% , primarily due to the increase in the number of paying customers in our Russia segment across all customer segments, reflecting the gradual recovery in business activity in the third quarter of 2020 after the COVID-19 restrictions were lifted in the end of the second quarter of 2020. Net income was ₽585 million, relatively flat compared to ₽571 million in the third quarter 2019, as the increase in revenue and the decrease in finance costs were offset by the increase in operating expenses related to our SPO occurring in the third quarter of 2020, and the increase in income tax expense. Adjusted EBITDA is up 13.2% due to increase in revenue, and Adjusted EBITDA Margin is up to 56.1% from 53.5% , or by 2.7 ppts, as our marketing expenses declined as a percentage of revenue due to allocation of expenses. Adjusted Net Income is up 17.0% and Adjusted Net Income Margin is up to 37.1% from 34.2% , due to the increase in Adjusted EBITDA, together with a decrease in finance costs, partially offset by the increase in income tax expense.
(in millions of RUB and USD) As of September 30, 2020 As of Change As of September 30, 2020 RUB RUB USD Net Working Capital(1) (3,111) (2,994) 3.9% (39.0) Net Debt(1) (2) 3,102 3,040 2.0% 38.9 Net Debt to Adjusted EBITDA Ratio(1) 0.8x 0.8x
(1) Net Working Capital, Net Debt, and Net Debt to Adjusted EBITDA Ratio are non-IFRS financial measures. See “Use of Non-IFRS Financial Measures” elsewhere in this release for a description of these measures and a reconciliation to the nearest IFRS measure.
(2) For the purposes of calculation of this ratio as of September 30, 2020, Adjusted EBITDA is calculated on the last twelve months basis. See calculation of the Adjusted EBITDA on the last twelve months basis elsewhere in this release.
Net Working Capital as of September 30, 2020 decreased by ₽117 million, or 3.9% , primarily due to an increase in trade and other payables and decrease in advances paid, caused by (i) deferral of annual D&O insurance policy prepayment to the fourth quarter of 2020; (ii) SPO-related professional services rendered in the third quarter of 2020 not paid as of the quarter-end, and (iii) an increase in payables attributable to on-line advertisement due to the timing of incurring these expenses in the period. Net Debt increased by ₽62 million, or 2.0% , primarily due to cash generated from operating activities (see “Cash Flows”), which was partly offset by decrease in loans and borrowings as of September 30, 2020, due to repayments to PJSC ‘VTB Bank’ in accordance with the repayment schedule. Net Debt to Adjusted EBITDA Ratio as of September 30, 2020 was 0.8x, flat compared to December 31, 2019, as our Net Debt and Adjusted EBITDA on a last twelve months basis remained flat. “Solid performance in the third quarter confirmed the continuous recovery trend observed since April, with improved KPIs translating into revenue growth across all client and product categories” said Mikhail Zhukov, Chief Executive Officer of HeadHunter Group PLC.
“We see meaningful opportunities arising in the transforming labor market, on the back of heightened digitalization of employment patterns. While this trend has already become increasingly prevalent across the industry in recent years, the lockdown has highlighted an importance and efficiency of remote solutions and accelerated the structural transition from offline to online recruitment channels.
Whilst the final outcome remains unclear , to date we have seen the second spike of the COVID-19 disrupting business activity to a much lower extent compared to the beginning of the pandemic. Employers and job seekers seem to have at least partially adapted to the ‘new reality’ whil st the Russian Government has managed to combat the spreading of the virus without imposing harsh restrictions on the economy. As a result, we have not observed any particular negative effect on our operational and financial metrics from the second spike to date and expect to keep further growing our resi lient business.”
Impact of COVID-19 on Our Operations and Financial Position
In March 2020, the World Health Organization declared the spread of COVID-19 virus a global pandemic.
We observed no specific impact of COVID-19 on our financial position as of September 30, 2020. However, our financial results for the second and the third quarter of 2020 were significantly affected. A decrease in the number of job postings and the number of new CV database subscriptions resulted in a decrease in revenues in the second quarter of 2020. As a response to a decrease in revenue, we implemented various cost-cutting initiatives, including putting all non-essential hiring on hold. In the third quarter of 2020, we saw our KPIs and revenues gradually recovering. Accordingly, we removed most of our cost-saving restrictions in the third quarter of 2020.
Our liquidity analysis based on our recent performance and current estimates shows that we have adequate resources to finance our operations for the foreseeable future. As at September 30, 2020, we were compliant with all financial and other covenants per our bank loan agreement. Based on current projections on our future performance, we expect to remain compliant with these covenants for at least 12 months from the date when this financial information was authorised for issue. In compliance with the recommendations of the authorities, we migrated to working from home from mid-March 2020, and have remained fully operational during the pandemic.
Our financial position, results and liquidity may be affected in the future by any further adverse developments related to COVID-19.
Operating Segments
For management purposes, we are organized into operating segments based on the geography of our operations. Our operating segments include “Russia,” “Belarus,” “Kazakhstan” and other countries. As each segment, other than Russia, individually comprises less than 10% of our revenue, for reporting purposes we combine all segments other than Russia into the “Other segments” category.
Customers
We sell our services predominantly to businesses that are looking for job seekers to fill vacancies inside their organizations. We refer to such businesses as “customers.” In Russia, we divide our customers into (i) Key Accounts and (ii) Small and Medium Accounts, based on their annual revenue and employee headcount. We define “Key Accounts” as customers who, according to the Spark-Interfax database, have an annual revenue of ₽2 billion or more or a headcount of 250 or more employees and have not marked themselves as recruiting agencies on their page on our website, and we define “Small and Medium Accounts” as customers who, according to the Spark-Interfax database, have both an annual revenue of less than ₽2 billion and a headcount of less than 250 employees and have not marked themselves as recruiting agencies on their page on our website. Our website allows several legal entities and/or natural persons to be registered, each with a unique identification number, under a single account page (e.g., a group of companies). Each legal entity registered under a single account is defined as a separate customer and is included in the number of paying customers metric. Natural persons registered under a single account are assumed to be employees of the legal entities of that account and thus, are not considered separate customers and are not included in the number of paying customers metric. However, in a specific reporting period, if only natural persons used our services under such account, they are collectively included in the number of paying customers as one customer.
Seasonality
Revenue
We generally do not experience seasonal fluctuations in demand for our services and prior to COVID-19 our revenue remained relatively stable throughout each quarter. However, our customers are predominately businesses and, therefore, use our services mostly on business days. As a result, our quarterly revenue is affected by the number of business days in a quarter, with the exception of our services that represent “stand-ready” performance obligations, such as subscriptions to access our curriculum vitae (“CV”) database, which are satisfied over the period of subscription, including weekends and holidays.
Public holidays in Russia predominantly fall during the first quarter of each year, which results in lower business activity in that quarter. Accordingly, our first quarter revenue is typically slightly lower than in the other quarters. For example, our first quarter revenue in our Russia segment in 2018 and 2019 was 20.9% and 21.6% , respectively.
The number of business days in a quarter may also be affected by calendar layout in a specific year. In addition, the Government of Russia decides on an annual basis how public holidays that occur on weekends will be reallocated to business days throughout the year as a requirement of the Labor Code of Russia. As a result, the number of business days in a quarter may be different in each year (while the total number of business days in a year usually remains the same). Therefore, the comparability of our quarterly results, including with respect to our revenue growth rate, may be affected by this variance. In addition, when a calendar layout in a specific year provides for several consecutive holidays or a small number of business days between holidays or holidays adjacent to weekends, HR managers of our customers may take short vacations, further contributing to the decrease in business activities in these periods.
The following table illustrates the number of business days by quarter for the years 2018 to 2020. In 2020 there is 1 business day more in the second quarter and in the total year and the same number of business days in the first, third and fourth quarters, meaning that the calendar layout in 2020 is substantially the same as in 2019, allowing for good comparability of our quarterly results:
Number of business days As % of total business days per year 2020 2019 2018 2020 2019 2018 First quarter 57 57 56 23.0 % 23.1 % 22.7 % Second quarter 60 59 61 24.2 % 23.9 % 24.7 % Third quarter 66 66 65 26.6 % 26.7 % 26.3 % Fourth quarter 65 65 65 26.2 % 26.3 % 26.3 % Year 2 48 247 247 100.0 % 100.0 % 100.0 %
On March 25, 2020, in response to the COVID-19 pandemic, the period from March 30, 2020 to May 11, 2020 was announced a ‘period of non-working days’ in Russia. As a result, two and 22 working days formally became non-working in the first and second quarter of 2020, respectively. However, at least some level of business activity was retained during this period, as remote work was encouraged and some sectors such as banking were functioning with limited capacity.
Operating costs and expenses (exclusive of depreciation and amortization)
Our operating costs and expenses (exclusive of depreciation and amortization) consist primarily of personnel and marketing expenses. Personnel and marketing expenses, in total, accounted for 76.3% and 77.4% of our total operating costs and expenses (exclusive of depreciation and amortization) for the years ended December 31, 2019 and December 31, 2018, respectively. Most of our marketing and personnel expenses are fixed and not directly tied to our revenue.
Marketing expenses are more volatile in terms of allocation to quarters and are affected by our decisions on how we realize our strategy in a particular year, which can differ from year to year. Therefore, total marketing expenses as a percentage of revenue for a particular quarter may not be fully representative of the whole year. Personnel expenses are relatively stable over the year; however, they are also affected by other dynamics, such as our hiring decisions. Some costs and expenses, such as share-based compensation or foreign exchange gains or losses, can be significantly concentrated in a particular quarter.
As an example, the third quarter segment external expenses in our Russia segment in 2018 and 2019 were 24.7% and 26.4% , respectively, of total Russia segment external expenses for the year.
Net income and Adjusted EBITDA
Even though our revenue remains relatively stable throughout each quarter, seasonal revenue fluctuations, as described above, affect our net income. As a result of revenue seasonality, our profitability in the first quarter is usually lower than in other quarters and for the full year, because our expenses as a percentage of revenue are usually higher in the first quarter due to lower revenue. For example, our Adjusted EBITDA margin was 46.1% for the first quarter of 2019, compared to 50.5% for the full year 2019. Our profitability is also affected by our decisions on timing of expenses, again as described above.
Contract liabilities
Our contract liabilities are affected by the annual subscriptions’ renewal cycle in our Key Accounts customer segment. A substantial number of our Key Accounts renew their subscriptions in the first quarter but prepay us in the fourth quarter of a previous year, as per our normal payment terms. As a result, we receive substantial prepayments from our customers in the fourth quarter which causes a consequential increase in our contract liabilities at the end of that quarter. For example, our contract liabilities as of March 31, June 30, September 30, and December 31, 2019 were ₽2,107 million, ₽2,041 million, ₽1,971 million, and ₽2,367 million, respectively.
Net cash generated from operating activities
Our net cash generated from operating activities is affected by seasonal fluctuations in business activity as explained in “Revenue” and by substantial prepayments from our customers (see “Contract liabilities”), as well as by our decisions in regard to timing of expenses (see “Operating expenses (exclusive of depreciation and amortization)”), and to a lesser extent by payment terms provided to us by our largest suppliers, such as TV advertising agencies and others.
Net W orking C apital
Our Net Working Capital is primarily affected by changes in our contract liabilities as discussed above. As our contract liabilities have usually been highest in the fourth quarter, our Net Working Capital has usually been lowest in the fourth quarter. For example, our Net Working Capital of March 31, June 30, September 30, and December 31, 2019 was ₽(2,672) million, ₽(2,697) million, ₽(2,588) million, and ₽(2,994) million, respectively. However, for 2020 we decided not to offer customers an opportunity to renew a contract for the same price if they paid us before January 1, 2020, which was the effective date of our new price list. This resulted in some customers shifting their payments from the fourth quarter of 2019 to the first quarter of 2020 and accordingly there were lower than expected contact liabilities as of December 31, 2019. In the future, our Net Working Capital pattern will depend on whether we offer such an opportunity to our customers.
Third Quarter 2020 Results
Our revenue was ₽2,308 million for the three months ended September 30, 2020 compared to ₽2,142 million for the three months ended September 30, 2019. Revenue for the three months ended September 30, 2020 increased by ₽166 million, or 7.7% , compared to the three months ended September 30, 2019 primarily due to an increase the number of paying customers in our Russia segment. In our Other segment, revenue for the three months ended September 30, 2020 decreased by ₽15 million, or 9.4% , compared to the three months ended September 30, 2019 on the back of political turmoil in Belarus.
The following table breaks down revenue by product:
For the three months ended September 30, For the nine months ended September 30, (in thousands of RUB) 2020 2019 Change 2020 2019 Change Bundled Subscriptions 616,501 584,492 5.5 % 1,718,711 1,642,467 4.6 % CV Database Access 504,234 493,409 2.2 % 1,321,800 1,312,798 0.7 % Job Postings 973,618 879,272 10.7 % 2,260,150 2,290,258 (1.3 )% Other value-added 213,848 185,149 15.5 % 531,784 476,860 11.5 % Total revenue 2,308,201 2,142,322 7.7 % 5,832,445 5,722,383 1.9 %
The following table sets forth the revenue broken down by type of customer and region:
For the three months ended September 30, For the nine months ended September 30, (in thousands of RUB) 2020 2019 Change 2020 2019 Change Key Accounts in Russia Moscow and St. Petersburg 564,798 515,281 9.6 % 1,493,220 1,443,978 3.4 % Other regions of Russia 214,301 178,432 20.1 % 578,475 464,018 24.7 % Sub-total 779,099 693,713 12.3 % 2,071,695 1,907,996 8.6 % Small and Medium Accounts in Moscow and St. Petersburg 735,865 731,744 0.6 % 1,779,545 1,930,182 (7.8 )% Other regions of Russia 539,058 461,140 16.9 % 1,288,564 1,195,879 7.8 % Sub-total 1,274,923 1,192,884 6.9 % 3,068,109 3,126,061 ( 1.9 ) % Foreign customers of Russia 14,283 6,098 134.2 % 42,014 36,128 16.3 % Other customers in Russia 96,949 91,774 5.6 % 243,153 227,535 6.9 % Total for “Russia” operating 2,165,254 1,984,469 9.1 % 5,424,971 5,297,72 0 2.4 % Other segments 142,947 157,853 (9.4 )% 407,474 424,663 (4.0 )% Total revenue 2,308,201 2,142,322 7 . 7 % 5,832,445 5,722,383 1 . 9 %
The following table sets forth the number of paying customers and ARPC for the periods indicated:
For the three months ended September 30, For the nine months ended September 30, 2020 2019 Change 2020 2019 Change Number of paying customers Russia segment Key Accounts Moscow and St. Petersburg 4,716 4,517 4.4 %
HeadHunter Group PLC
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About HHR
headhunter is the leading russian online recruitment company founded in 2000 and operating in russia, ukraine, belarus, kazakhstan and azerbaijan. the company’s largest asset is hh.ru website owning the database that comprises 380 thousand open vacancies and 24 million resumes. 550 thousand users receive job interview invitations via hh.ru every week.
