Monster Q4 Earnings Call Transcript

123jump.com Staff
08 Feb, 2010
New York City

Revenues fell 27% to $213 million & net loss was $2.11 million or 2 cents a share. Pro forma operating expenses at $213 million were essentially flat with the 3rd quarter & lower than last-year

Monster Worldwide Inc. ((MWW))
Q4 2009 Earnings Call Transcript
February 3, 2010 5:00 p.m. ET

Executives

Robert Jones – Vice President of Investor Relations
Salvatore Iannuzzi – Chairman, President and Chief Executive Officer
Timothy T. Yates – Executive Vice President and Chief Financial Officer
Steve Cooker – Senior Vice President and General Manager of Government Solutions
Darko Dejanovic – Global Chief Information Officer and Head of Product
Ted Gilvar – Chief Marketing Officer
James M. Langrock – Senior Vice President of Finance and Chief Accounting Officer
Michael C. Miller – Executive Vice President and General Counsel
Art O’Donnell – Executive Vice President, Global Customer Service
Lise Poulos – Executive Vice President and Chief Administrative Officer
Mark Stoever – Executive Vice President, Corporate Development and Strategic Alliances

Analysts

Mark Mahaney - Citigroup Smith Barney
Monica DiCenso - J.P. Morgan
Timothy McHugh - William Blair
James Mitchell - Goldman Sachs
Tobey Sommer - SunTrust Robinson Humphrey
Mark Marcon - Robert W. Baird

Presentation

Operator

Good afternoon. My name is Christian and I will be your conference operator today. At this time, I would like to welcome everyone to the Monster Worldwide Fourth Quarter and the Full Year Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star then one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I will now turn the call to our host, Mr. Bob Jones, Vice President of Investor Relations. Sir, you may begin.

Robert Jones

Thank you. Good afternoon and thank you for joining us on Monster Worldwide’s fourth quarter and full year 2009 conference call. In addition to announcing our financial results for the period, in a separate news release, we announced a definitive agreement to acquire the asses of Yahoo! HotJobs and entered we entered into a traffic agreement with Yahoo! We will have formal remarks from Sal Iannuzzi, Chairman, President and Chief Executive Officer and Tim Yates, Executive Vice President and Chief Financial Officer. In addition to Sal and Tim, several members of our executive management team are available to answer your questions during the Q&A part of the call. They are Darko Dejanovic , CIO and head of product; Ted Gilvar, Chief Marketing Officer; James Langrock, Chief Accounting Officer, Michael Miller, General Counsel; Art O’Donnell, Global Customer Service; Lise Poulos, Chief Administrative Officer; and Mark Stoever, corporate development and strategic alliances. Steve Cooker, the head of U.S. sales is also with us today.

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.

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, risk associated with acquisitions and dispositions, competition and any other risks discussed in our Form 10-K and other filings made with the Securities and Exchange Commission.

With that, I’d turn call over to Sal for his comments.

Salvatore Iannuzzi

Thank you, Bob. Good afternoon and welcome to our fourth quarter and year end 2009 conference call. I will cover the following topics on my remarks this afternoon, a quick review of Monster’s growth strategy, our current business trends, a summary review of fourth quarter performance, today’s announcement of our entry into definitive agreement with Yahoo! to acquire HotJobs and the traffic agreements with Yahoo! and the areas of focus as we enter 2010.

Tim will then provide financial details on the fourth quarter of 2009 and further perspective on the Yahoo! announcement as well as context for the first quarter and full year 2010. I will then make brief summary remarks and then we’ll take your questions.

We are pleased to see many of you -- we were pleased to see many of your at our investor conference in New York City three months ago. At that time, we updated you on the progress we’ve made in transforming Monster and demonstrated our innovative precision search technology powered by Trovix, which we now branded 6Sense.

This new search engine powers a suite of products that delivers precise, relevant results that match seekers with job opportunity faster and better than ever before. This revolutionary product exemplifies the innovative approach we’ve taken in reviewing every aspect of our business. It is a culmination of our initiatives to position the company for long-term sustainable growth.

Let me take a few minutes to quickly summarize these initiatives. We have largely rebuilt our infrastructure, creating a solid platform for future growth. We overhauled seeker experience and introduced new career management resources and tools for millions of job seekers that visit Monster around the globe.

We’ve expanded audience for our employer’s job postings through our innovative media products, including career ad network products. We’ve significantly enhanced our networking capability through the integration of our Monster affinity communities. We’ve expanded our reach to key alliances and partnerships with offline and online media.

We have established a wider geographic footprint in large geographic markets in Asia and now, with today’s announcement regarding the proposed acquisition of Hotjobs from Yahoo! and the traffic agreement with Yahoo! We had substantially added quality traffic while significantly increasing our customer base.

The new tools and applications available to our customers, both employers and seekers, are unique to monster and distinguish us from the competition. We have changed the industry by creating the best search technology in the recruitment business. All these positive initiatives have generated strong momentum as we enter a better environment in 2010.

We are very proud of these accomplishments, particularly given that we achieved them during a deep global recession and are gratified by our customer support. As the global economy appears to be recovering from recession, we have seen positive signs of continued stability and improvement. Several major economic indicators, including GDP, unemployment and online recruitment data suggests that U.S. and Europe are in early stages of recovery.

For example, the U.S. GDP increased annual rate of 5.7% in the fourth quarter of 2009. Additionally, the Monster employment index for the U.S. and Europe consistently show more positive trends. As a result, companies have heightened their interest in acquiring talent and filling critical skill positions. Conversations with our customers are becoming-increasingly more positive as they look to rehire and create jobs during this period of high labor productivity.

It’s becoming evident that companies will need to expand their work force to keep up with demand as the economy recovers. The combination of a strengthening economic environment with strategic initiatives, we have implemented at Monster have resulted in significant improvement in our operations and provide a superior value proposition to our customers.

However, as you known the unemployment rate remains historically high and demand is substantially down from normal levels. But there is no question that we are in a far better place today than we were at this time last year. The psychology of the market has clearly improved. Customers are showing more optimism and job creation is now the nation’s top priority. On a personal note, I have been honored and privileged to have made several trips to the White House recently as part of the President’s plan to create jobs in America.

These meetings have provided valuable insight into the thinking of business leaders and their future needs to expand their workforce. While there are still many obstacles to overcome, the tone of these business leaders has become more positive and upbeat as the economy is strengthening.

In looking at the fourth quarter results, sales came in better than our forecast. The recruitment market is large and highly competitive and fragmented and we are increasingly confident that we are gaining share from targeted competitors. While we expected a sequential seasonal lift in sales, the increase we experienced was a pleasant comprise.

Our deferred revenue balance, excluding China HR, increased sequentially for the first time in almost two years and is a precursor to higher revenue over time. Both revenue and the bottom line were in line with our expectations.

Our international revenue showed a sequential increase in the fourth quarter, as certain larger European countries contributed to the momentum that we experienced in our Asia business beginning in the third quarter. In the U.S. key indicators have improved and it is clear we are winning the competitive battle.

There are a number of strategic factors that came together that drive this performance. Monster has seen the benefits of many changes made to improve and enhance our customer experience. Seekers have become more engaged on the site as a result of the new career management resource tools and the ability to view more relevant jobs quicker.

Our ability to offer an expanded portfolio product, including media products to our career ad network provide more exposure and better results for our customer’s postings. The result of our Power Resume search product, which was introduced during the last week in October in the U.S. so far has been absolutely outstanding. Customers are finding that they are operating more efficiently by saving time and money as we deliver more relevant and qualified candidates. This efficiency and improved results have allowed us to capture a premium price for the product.

We are very excited about the potential for this product as it gains traction as we roll out the product in certain markets in Europe, Asia and Australia this year. The bottom line is, that we have seen improved results due to customers’ acceptance of our new product and expanded portfolio aided by the improvement in employment as a result of a better economy.

We’re extremely pleased to also announce today a definitive agreement with Yahoo! to acquire HotJobs and at the same time enter into a multi-year traffic deal to be exclusive career site on Yahoo!’s U.S. and Canadian home page. The agreement also provides Monster with the exclusivity to negotiate similar traffic agreement with Yahoo! properties on the global basis.

I’d like to provide a high level overview of what this deal brings to monster and Tim will provide additional detail and a financial perspective. Essentially, the transaction positions Monster to add high-quality, relevant job seekers efficiently while at the same time significantly expanding our customer base. This transaction will bring Monster superior technology and expertise, including its recently-introduced 6Sense search technology to a deeper combined pool of job seekers and employers.

This combined offering will be made even more robust as future job seekers and employers are brought to the Monster site to increase traffic from the vast Yahoo! network. The traffic deal will establish a number-one traffic position Monster in the U.S. The opportunity to work with an additional 600 daily and weekly newspapers through both companies alliances with newspaper publishers is exciting and presents an opportunity for significant growth going forward.

These media partners represent approximately half of U.S. daily and weekly market newspaper circulation and allows further access into local markets and job sectors. The transaction will be accretive to our earnings in 2011 and break even on a pro forma basis in 2010.

Our liquid balance sheet provides strong financial foundation to execute this transaction and allows us to continue to finance future investments without compromising our financial strengths. A deeper pool of employers and job seekers ensures more and better quality matches, making the business more attractive and providing more value than what each company could achieve separately.

With this added value and with the accretive aspects of the transactions, we believe that employers, job seekers, our newspaper partners and shareholders will realize substantial benefits from this new partnership once the deal closes and for the longer term. Finally, while this transaction directly strengthens our U.S. operations, Monster’s customers will benefit as they accrue talent from a larger U.S. seeker base.

We are entering the new year a much stronger company. We have innovative products, superior technology, improved customer service and a vastly improved go-to-market strategy. We’re confident we will build on the strong foundation by continuing to invest in areas that will contribute to future growth and we certainly have many initiatives in place to build on our success.

Let me just highlight a few. Innovation will continue to be the cornerstone of Monster’s growth strategy. We believe there are many opportunities to broaden the application for our 6Sense technology and we are intrigued with the potential. On the marketing front we’ll continue to support and promote our brand creatively and efficiently. Our new marketing campaign, ""Get A Monster Advantage"" is a three-tier platform aimed at giving both job seekers and employers a way to search better, plan better and connect better.

The campaign highlights Monster’s innovative resources designed to match people with the right job and employers with the right talent. You will see an important part of the campaign during Sunday’s Super Bowl. I don’t want to give away too much, but watch for the beaver with the fiddle that migrates from a pond to a hot tub. I think you will find you’re entertained.

We have spent a considerable amount of time internally crafting a multi-year geographic expansion that will enabled Monster to develop -- to enter developing countries efficiently and effectively. This effort is being led by Rob Brower, who is a key member of the team that established Monster’s current leadership position in Europe. The strength of our European management team allows Rob to assume responsibility for this important initiative. We believe there is huge opportunity to expand the Monster brand to countries in Eastern Europe, Latin America and Asia, which have large employee populations and growing economies. This planned expansion is underway and will accelerate throughout the year.

We will continue to be disciplined and follow a strategic plan that allows us to build on the strong foundation we’ve created. Monster has tremendous opportunity to expand its products, its market and its geographic presence. As the economy continues to improve, we are poised to take advantage of those opportunities.

With that, I’d like to turn it over to Tim. Tim?

Timothy T. Yates

Thank you, Sal and good afternoon, everyone. As we have in prior quarters, first I will walk through our pro forma income statement then I will highlight the adjustments, which reconciles pro forma results to our GAAP results. After a brief discussion of our operating segments, I will comment on our cash and liquidity then I will build on the comments we made in our Investor Day presentation late October about 2010 and in particular first quarter. And finally I will discuss the transaction we announced today with Yahoo!

Throughout our conversation, I will be distinguishing between sales, which represents contractual bookings received during the quarter and accounted for in deferred revenue and revenue, or the amount of revenue recognized during the period consistent with our revenue recognition policies. Pro forma revenue during the quarter was $213 million, essentially flat with the third quarter and down 27% from last year’s $293 million.

Currency favorably impacted revenue during the quarter by $7.7 million on a year-over-year basis. This positive impact was largely offset by an unfavorable impact on operating expense as a result of currency adjustments of $5.9 million. Pro forma operating expenses at $213 million were essentially flat with the third quarter and lower than last-year’s fourth quarter by $38 million or 15%.

Pro forma interest was a loss of $1million during the quarter compared with positive $1.6 million in the prior-year quarter. Our pro forma consolidated tax rate was 33% versus 29% in the third quarter and 34% last year. Pro forma income from continuing operations was a loss of $1.5 million or penny per share, compared with a $28.3 million profit in the prior year and $0.24 per share.

I will now walk through this quarter’s pro forma adjustments, which had a negative impact on GAAP net income of $600,000 or slightly over $0.01 per share. The pre-tax adjustments are $2.9 million charge on the salary and related line resulting from realignment of staff, a $6.3 million benefit on the office in general line, resulting from our settlement with a former officer of the company in a litigation matter, which was partially offset by real estate consolidation charges, a $6.1 million charge on the interest and other line resulting in settlement of our litigation with RBC related to our auction rate securities portfolio and additional charges to value the portfolio on a consistent basis.

We will discuss that settlement when we discuss our liquidity position. Total pro forma operating expense during the quarter was $213 million, essentially even with the third quarter and a 15% improvement year over year. Within that, total salary and related expense was down 14% year over year, reflecting the net reduction of headcount of approximately 1,300, including China as well as a lower level of incentive compensation and commissions in 2009.

On a sequential basis, salary and related was up 5% as a result of one-time benefits in the third quarter and an increase in commissions, combined with negative currency impact in the fourth quarter. Total advertising and promotion expense at $45 million was down 14% versus the prior year but was consistent with the level of spend in the prior quarter. Total office and general expense was $56 million in the quarter, 18% lower than last year and 5% lower sequential.

North American operating segment had revenue of $91 million, a 33% year over year and a 4.5% sequential decrease. Despite this decline, the segment generated $4.3 million of operating income. On a sequential revenue basis within North American segment, our Canadian and government channels were slightly up, our enterprise channel was essentially flat and the SMB and staffing channels continued to lag again on a revenue basis. More importantly, on a sequential sales basis, during the quarter our enterprise, staffing, healthcare and telesales or SMB channels were significantly up.

Our eComm channel declined slightly due to seasonality and our government channel was down on a sequential sales basis as a result of a significant number of larger sales closed during the third quarter. On a year-over-year basis, our government channel was our single percentage strongest performer. Revenue for the international segment was $88 million, representing a 29% year-over-year decline but a 4% increase on a sequential basis.

Operating income was $300,000, consistent with the prior quarter. On a sequential revenue basis, a number of our international markets were up, including China, Korea, France, Italy and Sweden, while the U.K., Germany and the Netherlands continued to show lower sequential revenue. However, the pace of the decline slowed dramatically.

On a sequential sales basis, all countries showed an increase. Revenue from the IAF segment was $34 million in the quarter, a 3% increase year over year and a 2.5% sequential decrease. Operating income was $5 million. As you know, portion of the revenue of the IAF segment -- excuse me -- is related to the careers and jobs market and thus throughout the year has been suffering from the same headwinds as our other careers business. The weakness in the careers business, however, during the year has been substantially offset by strength in our other advertising platforms, in particular in the lead generation area.

On a sequential basis, the third quarter is particularly strong in our education and military businesses as a result of the strong September back-to-school selling season, which they both benefit from.

Turning now to the balance sheet and cash flow, throughout this difficult period a top priority has been to preserve cash. At year end, we had net cash and securities of $250 million versus $234 million at the end of the third quarter. Including our undrawn revolving credit, the company has total liquidity of $550 million.

During the quarter, the company settled litigation with RBC with regard to the auction rate securities. RBC agreed to and has immediately repurchased at a discount the securities we had bought through them. Under certain circumstances, Monster will receive additional proceeds if any of the securities repurchased by RBC are refinanced at a level higher than we received.

In addition to the charge taken to reflect this settlement, the company decided to mark-to-market the remaining auction rates, which were not acquired through RBC, to the price reflected in the settlement. With our settlements with RBC and UBS, we have substantially resolved the liquidity of our ARS portfolio.

Pro forma EBITDA during the quarter was $27 million and capital expenditures were $10 million, a reflection of the maturing of our investment cycle. Deferred revenue ended the quarter at $306 million, up 15% from last year’s -- last quarter’s level of $266 million. As Sal mentioned, this is the first time that deferred revenue, excluding the impact of the acquisition of China HR, has increased on a sequential basis since December of 2007 and is concrete evidence that the business is improving.

Summarizing the quarter, revenue and earnings per share loss were consistent with our expectations. Several of our channels and key countries showed sequential revenue increases and all of our countries and most of our channels showed solid increase in sequential sales. Our costs and headcount remained under tight control. The composition of our liquidity has been enhanced as a result of our settlement with RBC.

The increase in deferred revenue is somewhat greater than we anticipated going into the quarter. The continued firming in the economy combined with strong competitive results fueled by strong acceptance of our new products are resulting in gains in sales.

As we move into 2010, there are many encouraging signs in our business. The economy has stabilized around the world and our clients’ budget and hiring plans are beginning to loosen up. The cumulative effect of the improvements we have made to our seeker experience and to our employer tools is resulting in increasingly improved results for our clients and as a result we are confident that we are gaining share.

The fourth quarter is historically a strong renewal season, but certainly in 2008, as a result of the recession, the renewal season was not as robust as in prior years. This year, on the other hand, fourth quarter sales were at the higher end of our own expectations, leading to a greater increase in the deferred revenue balance than anticipated.

We are confident that in the execution of our business plan and in the fact that the macro global economy is slowly improving. As the economy improves, as hiring picks up, as recruiting dollars continue to migrate from offline to on-line on a global basis and as our seals increase there is a powerful up side to our revenue. Because much of our investment in product technology and infrastructure is in place, a substantial portion of that incremental revenue will drop to the bottom line.

So despite continuing headwinds in the general economy, with global unemployment remaining at historically high levels, we approached 2010 with considerable optimism. But as we discussed at some length in our Investor Day meeting, recognized revenue will lag sales as a result of the depth of the recession in 2009.

Our comments about the first quarter and more particularly about the full year are based on the environment as we see it today, which assumes a continuing slow improvement in the global economy. These comments do not reflect the potential impact of our proposed acquisition of HotJobs, which I will discuss separately and please recall that they pertain to our pro forma results consistent with our prior practices and do not reflect any one time charges, which may occur or other costs associated with continuing realignment of the business.

As you know, while deferred revenue increased in the fourth quarter to $306 million we started 2009 with a deferred revenue balance of $414 million, so we start the year with over $100 million less in deferred revenue. While we expect annual sales for 2010 to increase by 15% to 20%, the first $100 million of that increase goes to replace the reduction in deferred revenue. As a result, on an annual basis we expect revenue will be flat on a year-over-year basis plus or minus a few percent.

And because the first quarter is somewhat slower from a seasonal point of view, we expect revenue in Q1 to be flat to slightly down on a sequential basis. For comparison purposes, the first quarter of 2009 was down 13% sequentially and that, of course, included a higher level of deferred revenue runoff.

Turning to operating expense, the first quarter has a higher level of salary expense, primarily as a result of increased benefit expense in the U.S. In addition, marketing expense will run higher in the first quarter as we roll out our 6Sense product and we execute our marketing campaign at the Super Bowl. Because of these two major factors, operating expense during Q1 will increase in the range of 10% to 15%, but both of these expenses will not reoccur in the second quarter.

For the full year, we expect pro forma operating expense to be up 3% to 6% on a year-over-year basis. This annual increase of 3% to 6% reflects effect of the increase in operating expense in Q1, which I have described and the potential reintroduction of some incentive compensation later in the year, assuming the economies continue to improve, as we forecast.

We will, of course, continue to stringently control operating expense and we will continue to refine the mix of our spend, with a greater percentage of 2010 spend going to sales and marketing than in recent years. As you know, over the past several years we have spent significantly to improve our product, our infrastructure and our seeker experience.

At this stage of our evolution, while we fully intend to continue to innovate our product, it is only natural that an increased percentage go towards getting our new product fully to the market. I want to reiterate here that the economies and the markets continue to have a higher degree of uncertainty than normal and we are mindful of that in providing this commentary.

We are, of course, monitoring the situation on a real-time basis and we’re not committing ourselves to major new fixed cost spending. While we currently believe that the growing rebound in the business warrants relaxing the operating expense control of the recent years a bit, we were equally prepared to go the other way in the event that the business does not progress as we currently forecast.

To summarize and again these comments were made before the impact of the proposed acquisition of HotJobs, we expect sales to be up in the 15% to 20% range for the year with annual operating expenses up 3% to 6%. Both of these expectations are consistent with our longer-term belief that revenue can grow at 15% per annum and that a substantial portion of incremental revenue will drop to the bottom line.

The lag between sales and recognized revenue reflects the lower level of deferred revenue coming into the year, thus revenue for the full year will be flat, plus or minus a few percent. For the first quarter, on a sequential basis we expect revenue to be flat to slightly down and operating expenses to be up 10% to 15%, reflecting seasonal spending. Thereafter operating expenses return to a more normal level.

Our forecast do not imply any significant drawdown in cash, with the exception of the proposed acquisition of HotJobs and as the business builds our cash will begin to build.

Turning now to our transactions with Yahoo! that were announced today, we are extremely pleased to announce that we signed the definitive agreements with Yahoo! to acquire HotJobs and at the same time enter into a multi-year traffic deal to be the exclusive career site on Yahoo! ‘s U.S. and Canadian home page. I am going to outline the major terms of the transaction, the strategic rationale for it, discuss the timing and finally review the financial attributes.

Outline of the major terms, we are acquiring HotJobs business for $225 million in cash. At the same time we have entered into an exclusive three-year North American traffic deal which will be effective upon the closing of the acquisition. Monster will be the career site in the personal assistant on Yahoo!’s home page in the U.S. and Canada. In the United States, our payments for traffic are performance based and will be based upon clicks and expressions of interest, or EOIs, with annual floors and ceilings. EOIs are defined as start of the applied process.

As you know, over the past several years we have been focusing on increasing our applies per posting and improving the quality and relevance of those applies, because that is what our clients value most and this traffic deal is designed specifically to drive applies. In addition to the Canadian traffic deal, the agreement affords us the exclusive right to negotiate other international traffic deals. Yahoo! has important international properties in many of our key markets such as U.K., India, France and Brazil among others and we are very hopeful that we will be able to work with our new partners at Yahoo! to build what we have done together in North America into a truly mutually-beneficial global partnership.

Transactions are extremely important for Monster. While there are a number of agreements, which will stand on their own, the two most important are the purchase of the HotJobs assets and the traffic deals. Both of those transactions are integral to our strategy. As you know, Monster’s strategy is based on the combination of precision matching, 6Sense technology, global scale and breadth of product.

As a result of this transaction, Monster’ scale will substantially increase in a profitable manner and Yahoo! and Monster seekers and HotJobs and Monster’s clients will gain access to more opportunities and more relevant opportunities, all accomplished in substantially less time. More employer and seeker matches will be made.

Specifically from Monster’s perspective, the traffic deal will clearly establish a number-one traffic position for Monster in the U.S. and the purchase of HotJobs will substantially increase the number of clients we serve and we believe in areas which are complimentary and additive to Monster’s historic strengths.

Alliances with HotJobs newspaper partners will provide Monster with approximately 600 additional access points for millions of consumers to reach Monster’s precision job search technology. The Canadian traffic deal is important in its own right to our Canadian business and in addition we trust that it provides a template to broaden our relationship with Yahoo! on a global basis.

As we have commented in our press release, the transaction is subject to clearance under the Hart-Scott-Rodino Act. Although both parties are eager to consummate the transaction as quickly as possible, our financial model is based on a closing sometime during the third quarter. Thereafter there will be a period of integration while we work together with Yahoo! to migrate the HotJobs business to the Monster platform.

We’d now like to briefly discuss our financial modeling of the HotJobs business. I will discuss in a high level our revenue, non-traffic operating costs, traffic costs, transition costs and then will conclude with the estimated impact on Monster’s financial results in 2010 and 2011.

On the revenue side, HotJobs revenue in 2009 was down in line with the industry; however, our model is based on the assumption that HotJobs revenue will flatten out during 2010 and grow in line with the industry in future years. We also believe that Monster can better serve HotJobs client base with our broader product line and new 6Sense premium product range.

But while we believe there is real potential revenue upside for the client base we are acquiring, our financial model does not depend on any revenue synergies and, in fact, contemplates some revenue dis-synergies as a result of potential client overlap. Based on our projections, the HotJobs business when integrated into Monster will represent an increase in our North American segment of between 20% and 25% on a full-year basis.

Non-marketing operating expense, since we are acquiring limited fixed assets and we are assuming little cost other than direct personnel cost, mostly sales and amortization of intangibles, we estimate that at a close approximately 275 HotJobs staff will become Monster’s. Since HotJobs and monster are in similar businesses, it is logical that there will be cost synergies to be realized, but in line with our own operating expense strategy we will be maintaining much of the sales resource to service our expanded client base.

Marketing spend resulting from the traffic deal. Our modeling assumes that the revenue stream resulting from the acquisition will fully cover the payments pursuant to the traffic deal. As mentioned, the traffic deal is based on clicks and EOIs and is heavily weighted toward EOIs, deal subject to an annual cap and floor.

We are confident that Yahoo! will deliver clicks and EOIs at a level that will earn the full capped amount and our model assumes full paying of the capped amount and amount that Yahoo! delivers in traffic in excess of the capped amount, our employers and seekers will, of course, benefit. Transitional costs, there will be a number of truly one-time costs associated with the acquisition and integration of the asset. Among those are fees associated with the transaction, the company was represented by Stone Key and Bank of America-Merrill Lynch and Allen & Company has provided a fairness opinion.

In addition, there will be retention and severance costs as well as technology integration costs. Based on these assumptions and based on the economy as we see it today, we believe that in 2010 the transaction will be breakeven to pro forma earnings per share and will be cash flow neutral after absorbing the one-time costs associated with the transaction and the transition.

In 2011 and beyond, the transaction will be meaningful, accretive to revenue, EBITDA and EPS. Considering the form of the currency of the acquisition, which, as you know, is $225 million cash, the company has been guided by the principle that Monster has substantial value, which is not fully reflected in our share price and thus we have jealously guarded our equity.

Given the current liquidity position, the improvement in the composition of our liquidity as a result of our settlement with RBC, the improvement in the capital markets and most importantly, the outlook for our business and the acquisition, we believe we have comfortable liquidity to finance the transaction in cash and continue to invest in the franchise as appropriate.

I will now turn the call back to Sal to wrap up.

Salvatore Iannuzzi

Thanks, Tim. Before taking your questions let me take a few minutes to summarize our key message points. In the past three years we have made significant progress in rebuilding and repositioning Monster for the long term. Without question, the first quarter will be difficult from a P&L perspective. However, we are convinced that it is the right thing to do to build the business for the longer term.

We see our financial performance improving beyond the first quarter of 2010 and from the non-recurring reasonable investments we made. We are seeing improved customer trends around the globe. This improvement combined with the trajectory of our business reinforces our commitment to continue to invest in Monster to increase sales and position us to benefit as the economy strengthens.

We never been more encouraged and more optimistic about Monster’s future. In the event that the company loses its -- the economy loses its momentum, I guarantee you the company will not lose its momentum. But in case the economy does lose its momentum, we will act quickly and decisively to curtail certain investments during the short term. We’ve successfully done this in the past and we’re prepared to take this action again if it’s warranted.

The acquisition of HotJobs and the traffic agreement with Yahoo! will provide even greater scale for our global platform, new customers and millions of engaged seekers. It leverages all we’ve done at a time when the economy is rebounding. Now, any time you do a transaction of this type, particularly with a complexity of both an acquisition, as well as the traffic deal, there are dozens of employees, dozens of people here at Monster that have been involved and spent countless hours to make this happen. That team was led by Tim Yates, Mike Miller and Mark Stoever and I’d like to just thank them for their efforts. This was a long and interesting negotiation. I’m sure the people at Yahoo! are saying the same thing at this point. And there’s plenty of work to be done between now and the close of the transaction, but I did want to take a minute to thank everyone on the team, once again led by Tim, Mike and Mark for their efforts.

I’d also like to thank all of our customers, our shareholders, our associates for their support and confidence, in particular, our global associates delivered and did an outstanding job in a really tough environment. They remain our greatest asset without question.

With that, we’ll open it up for questions.

Question-and-Answer Session

Operator

At this time, I would like to remind everyone, if you would like to ask a question, please press star one on your telephone keypad. Our first question comes from the line of Mark Mahaney.

Mark Mahaney - Citigroup Smith Barney

Thanks. I wanted to ask one or two questions just about the HotJobs transaction. Could you just comment on whether there was -- whether it was competitively bid for and whether there were other assets you were also looking at and whether you would still consider other acquisitions going forwards, including more international expansion? Thank you.

Timothy T. Yates

We’ve been dealing with Yahoo! directly. I’m not aware of anything other than the conversations that they’ve had with us. Obviously, we’re always looking at other things that might be available in the market, right now there’s nothing specific. I think our first priority is to do a really good job integrating this and welcoming the HotJobs staff to Monster.

Robert Jones

Operator, next question.

Operator

Now, our next question comes from Monica DiCenso.

Monica DiCenso - J.P. Morgan

Hi. Thank you. I wonder if you can give more color about the international expansion and how that ties into HotJobs and how much overlap there might be there? And then also on the small and medium-sized businesses, if you could talk a little more just about how that business has bounced back, if you can quantify that a bit, given that it’s be a larger portion of revenues after HotJobs hopefully closes? Thanks.

Salvatore Iannuzzi

Okay. With regard to the first part of the question and then I’m going to ask you to please repeat the second part of the question, I didn’t quite get it all. First of all, what we’ve been doing is shifting resource. We started in the second half of last year and are accelerating that. And as I mentioned in my comments, we put a senior member of our organization in charge of moving into markets, particularly in Eastern Europe more aggressively than we have and certainly in Latin America. Countries, for example, like Brazil we think present enormous opportunity and we need to capture some of that activity. In Asia, the story is the same, obviously we’re well anchored with our businesses in India, in China with China HR and we’re very proud of our team and our business in Korea.

But there’s still plenty of opportunities to further develop our footprint in countries where we are in existence. For example, Singapore, Malaysia, et cetera and into countries where we do not have a presence and expand our presence. The Yahoo! Transaction, I think impacts it in several ways. One is that, first of all, we do have and given our position as unquestionably the number-one global firm in our industry, that this gives opportunity for us to better service our multi-national customers both outside and inside the United States, by being able to offer a broader array of seekers, of candidates for jobs and satisfy their needs even more robustly than we’ve been able to in the past. In addition to that, as Tim mentioned in his comments and I think I mentioned in mine, the agreement also calls for us to be able to where -- particularly where Yahoo! is strong, which is in many countries, is to set up traffic deals, traffic agreements, if you will, perhaps similar to what we’ve done here in the United States in other countries, which will, in turn, improve the seeker inventory, the candidates, if you will, coming to Monster and promote growth in those areas.

So we’re particularly interested in continuing the relationship with Yahoo!. Obviously, with regard to the traffic that we’ve -- in Canada and here in the United States, but we’re anxious to proceed to see where other opportunities exist for us to be able to make the partnership even stronger and greater than it is today. I’m sorry, I didn’t capture the second part of the question.

Robert Jones

SMB, the strength of the SMB process. Steve, you want to…

Steve Cooker

Sure.

Robert Jones

…. talk a little bit about what you’re seeing there?

Steve Cooker

Yes. Well, what we’re seeing, this is my comments are without the HotJobs acquisition. So from a SMB perspective, we’re seeing the business condition start to ease a bit around what’s happening in the economy. We are seeing a greater take rate as relates to our PRS, our 6Sense product. When I look at where we’re selling volumes of that product, it is in that SMB space. So in terms of overall sales growth, I think we can expect to see greater impact from PRS in general. We also, from a sales deployment perspective, are spending a lot of time looking at customers who used to do business with us but aren’t currently, and we’re reaching back to those customers, engaging with those customers, telling them about the new technologies and offering up a much better value proposition than we had a year or so ago. So we’re finding that it’s great success with that. Further, we’re reaching out to many new customers. There is volumes of opportunities in the SMB space with companies who haven’t done business with us in the past and, again, with a strength and value proposition and PRS, I think we can make a great headway there.

Timothy T. Yates

So -- and, Monica, I think as you point out, HotJobs will bring a large number of SMB customers to us that we’ll be able to serve.

Robert Jones

Okay. Operator, next question.

Operator

Our next question comes from Tim McHugh with William Blair.

Timothy McHugh - William Blair

Yes. Two questions if I could. First, can you give us perhaps a little more detail or color around the customer reaction and adoption of the new search product and the pricing for that? And then the second question is, Tim, your comments about 3% to 6% expense growth and your comments about the expense growth of 10% to 15% in Q1, was that off of Q4 or was that off of an annual run rate or an annual average? Just wanted to make sure I understood the denominator.

Timothy T. Yates

Okay. The 10% to 15% is off of the Q4, the 3% to 6% is off of the annual number.

Timothy McHugh - William Blair

Okay. And then the new search product, any additional details or color you can provide there?

Salvatore Iannuzzi

Sure. I’m going to take a moment with it and then turn it over to Steve. I think that really at the risk of sounding overly exuberant, the reaction to the product has been very strong. Okay. Words like wow, tremendous, terrific, boy, we really did it, all come to mind, but not that I’m proud of it or anything like that. I don’t want to give the wrong impression. The customers, virtually every customer that’s seen it has been very impressed with it. The majority -- the significant majority of customers have also been satisfied to pay the premium. As you might expect, there are always customers out there that think it’s a great product but they’re wondering why we’re not even charging less for it, so it’s the other end of the spectrum.

But the vast majority of customers not only are satisfied, but we’re really not getting any type of significant push back with regard to the pricing. They say it is efficient. They say it is beneficial. They say it is much quicker, much more accurate. In every respect it is -- it’s just a superior search methodology than certainly, the search methodology that we had and anyone else has that’s out there today in the human resources or acquiring human resources space. Steve?

Steve Cooker

Yes, Sal. I think you said most all of it. What we’re seeing from our customers is basically what we were hoping to see and that is a more efficient process. We affect the process and we’re getting better candidates in front of our customers quicker and as a result what -- they believe and, frankly, when we see the reactions we get from our customers when we demo the product and once they buy the product, it kind of -- it sells itself. We’re finding our sales force has rallied around this product. It’s very easy to use, it’s very easy to demonstrate and the ability to take the concepts and show the customer the value around it is very easy.

I have to admit, from a sales perspective, walking into Q4 and announcing the product in October and the results that we’ve seen from the product are beyond my imagination. We had a high bar in mind and we actually blew through that high bar relative to what we were expecting in the way of sales and that continues into this quarter as well. So we’ve had great success with it, the customers love it, our sales reps love it and I think it’s going to be a big contributor to our success this year.

Salvatore Iannuzzi

I’d just like to add one thing to that. Perhaps it was higher than Steve’s imagination, certainly not mine. But I’d also -- I’m going to ask Darko to comment for a moment with regard to the expansion, if you will, of 6Sense to other countries, et cetera, in the coming months and quarters, just so that you have a perspective of what the roll-out, if you will, of the product looks like.

Darko Dejanovic

So, we already rolled out Power Resume Search in U.K. in beta in December, that’s going well. We are planning to launch and start selling it full-blown in this coming quarter. Canada was launched just a couple weeks ago. France is going live the end of Q1. We’re also looking at a couple of additional markets overseas going right after that. We’re also going to launch in Australia later in the year. So we have several more markets we are getting ready to do. The important thing for us was to start launching it in foreign languages and changing that.

So as both Sol and Steve mentioned, the product looks and feels great to the customers and they’re responding amazingly to both here and overseas in our markets, so we are planning to launch this product. On top of it, we have several other products that we will use 6Sense technology to launch in the subsequent two or three quarters that we thinks going to be as big of a differentiator in the marketplace as the Power Resume Search is today. When we originally made this acquisition, I think we thought and looked at it as a great benefit in terms of improvement to search but I think we discovered the last quarters it’s such a powerful technology ingredient that will allow us to power multiple products and really differentiate us from our competitors.

Robert Jones

Operator, we will take another question.

Operator

Our next question comes from James Mitchell with William Blair.

Robert Jones

I think we…

James Mitchell - Goldman Sachs

Hi. This is James, thank you for taking my question and congratulations on the acquisition. I think you’re looking for revenues to be flat sequentially in first quarter where historically revenues are up in the first quarter. I understand that deferred revenue is still down year on year, but deferred revenue is meaningfully quarter on quarter, which I assume could be a more important determinate of sequential revenue, correct? Could you talk a little bit about what are the puts and takes going into the first quarter reported revenue and whether you’d expect reported quarter revenue to turn positive sequentially in the second quarter? Thank you.

Timothy T. Yates

All right. You were breaking up a lot, but I think I got the gist of the question and I think you’re right in observing that the sequential basis, the deferred revenue in the fourth quarter was up, as we said, at the higher end of our expectation. So that gives us better underpinnings going into 2010 than, obviously, if we come out of the lower end of our expectation, so we feel good about that. On the other hand, on a year-over-year basis, the deferred revenue starting the year is quite a bit less, so as that rolls through the remainder of the year, that will have an impact, which is being made up by an increase in sales activity.

So that’s what leads to us saying that sales activity for the year up 15% to 20% but in Q1, because of the reduction in deferred revenue roll-off and the -- and Q1 not being as strong a seasonal period to being flattish. So in the second quarter we gave you some thought about the full year and the results in the second quarter would not be materially different, but I’d prefer not to be specific about that.

James Mitchell - Goldman Sachs

Okay. Thank you.

Salvatore Iannuzzi

I think the important issue here that everyone needs to focus on is the fact that, yes, without question Q1 will be a rough quarter from -- as I mentioned, from a P&L perspective and I think that there is to be able to continue to invest and do what we’re doing, particularly given where the economy appears to be going, where all the signals are, that we will have wasted a lot of the energy that we put into the business over the past several years by not being continuing to invest, continue to build our business for the future, I think we’d really missed the opportunity. Now is not the time, okay. It is always the time to be cautious, it always is time to be guarded, but it is not the time to pull back. It’s the time to move forward and take advantage of what we’re starting to really believe is ahead of us.

Timothy T. Yates

Could I just, as I mentioned you were breaking up. I’d just be interested in -- I didn’t catch the name of who was asking us?

James Mitchell - Goldman Sachs

James Mitchell, Goldman Sachs. Thank you for the answer.

Robert Jones

Yes. Just to clarify it was -- is Goldman Sachs.

Timothy T. Yates

Good.

Robert Jones

Operator.

Operator

Our next question comes from Tobey Sommer with SunTrust.

Tobey Sommer - SunTrust Robinson Humphrey

Thank you. I was wondering if you could talk about deferred revenue a little bit more, what the selling season was like in terms of more or less customers committing to contracts for longer or shorter duration periods? And then maybe your thoughts on margin potential in the business, if the expansion continues for a few years here? Thanks.

Salvatore Iannuzzi

I’m very sorry, you were breaking up. Could you repeat the question?

Tobey Sommer - SunTrust Robinson Humphrey

Sure. I wanted to see if you could comment on the deferred revenue selling season, whether there were more or less customers participating in signing up for longer or shorter duration contracts? And then secondly, I was hoping I could get your comments on margin potential if the recovery persists for a few years. Thanks.

Timothy T. Yates

Okay. Yes. We are winning new customers, so there are more customers and more customers are -- more of our existing customers are renewing certainly at an increase than they did last year where they were cutting their budgets substantially. So I would say more customers, but primarily at this stage of the game existing customers taking up their spend with us and we believe at the expense of our targeted competitors, so that’s the first thing. We have not seen a major shift in the terms of the contracts, in terms of either the length of the contracts or in other technical factors of it. There are always a few out there, but overall we have not seen material shift. Then I forget the third component of the question?

Tobey Sommer - SunTrust Robinson Humphrey

It had to do with your commentary on margin potential.

Timothy T. Yates

So, yeah. If you take the equation that I laid out in our sales increasing 15%, while we’re holding and if that -- if, that’s a hypothetical, if that were all to come through into revenue and eventually it will. You’re growing your expense at a significant percentage less than that, as we have said all along. So a couple of years of that happening, which we believe because most a lot of the spend is -- has been done does get us to the kind of margins we’ve been talking about. I don’t -- we don’t want anyone to think that there isn’t the need to spend some more to develop the market, there is. However, as -- using this year as a proxy, revenue up, sales up 15% to 20% and costs up 3% to 6%.

Salvatore Iannuzzi

Steve, do you want add a little more color to what you’re seeing with customers.

Steve Cooker

Be happy to, Sal. Just looking at the customers that spend $25,000 or more with us annually in the fourth quarter, what we’re seeing is we are getting a larger amount of share, mostly driven by selling multiple products to these customers, including job posting, resume and media products and another big aspect of that is our global presence and our footprint there. The majority of customers have either spent what they spent with us last year or are spending more with us. We have -- in Q4 we saw very few, very few customers not renew with us. We also think that there are additional requirements that we’re seeing in Q4 this year that we didn’t see last year. So I think there are a couple of drivers in there. One, it’s just a better value proposition focusing on our customers and as a result, we’re getting more wallet share and predominantly taking it from our competition. And two, I think the multi-products are really making a big impact as well as our global presence. That’s it.

Robert Jones

Operator. We have time for one more question.

Operator

Understood. Our final question comes from the line of Robert -- I’m sorry, Mark Marcon with Robert W. Baird.

Mark Marcon - Robert W. Baird

Good evening and thank you for taking my call. Can you talk a little bit about what you’ve seen actually just in terms of posting activity in January relative to the last couple of months. Was there -- do you have any sense that maybe there was a budget flush towards the back of the last quarter and it pulled some postings forward and now people have satisfied that or are you seeing a continuous build as the months are proceeding?

Salvatore Iannuzzi

Well -- first of all, host -- our entire business, our entire -- and from business, obviously I’m talking about our sales. We saw a significant increase in sales in virtually every country, virtually across every product, postings included. I do not believe that we saw anything that was pushed in Q4 from a usage basis that was pulled in or do I see anything in January to indicate that the trend that we’re describing is breaking. Okay. We’ve been very, very cautious over the past year, year plus, to indicate where the market is and where we see activity, levels of activity, et cetera and we’ve been very cautious in not overstating what we see.

I think that Q4 surprised us, to be quite honest, in terms of the robustness of the buy that was out there. I think a good measure of it was greater confidence, once again, in the economy. I think a piece of it was due to the fact that the mix of product that we’ve delivered and the value proposition, most recently aided by 6Sense, I think is such that there is really growing evidence now. It’s hard to measure that we are taking market share from the competition from what we can tell. No one else from the numbers that have been released and they are sketchy. This is an interesting industry. It’s very hard to get any kind of metrics on what the competition is really doing. But based on everything we can see, we took market share and our growth in Q4 with greater than any of our significant competitors.

And I think, again, that’s largely due to a number of things. It’s due to the enhanced sales force. We’ve been investing, we’ve been educating, we’re been training, et cetera. It’s obviously the mix of product and the work that we have been doing there. It’s greater customer satisfaction across the board. It’s from customer service to the way our people are transacting with customers. I think we’ve enhanced that methodology considerably.

So I think there’s a bunch of factors at play and I think they bleed into what we’re seeing in January so far. And obviously it’s -- I don’t think anyone would say the economy is robustly rebounding, but I think that, as we’ve said for sometime, I think we will really reap the benefits of what we’ve done when the economy truly rebounds totally on a robust level. And in the interim, we are working hard to take market share and grow the business organically. And right now we’re starting to get a push from both. I think we’re getting it from the improvements we’ve made and we’re getting it from the improvement in the employment seen here and internationally.

Mark Marcon - Robert W. Baird

Great. And then can you talk a little bit about 6Sense in terms of, since it’s been introduced what percentage of the clients that have signed up for new packages have taken 6Sense and what sort of premium you actually got?

Salvatore Iannuzzi

The majority of our customers that are renewing licenses for search licenses, if you will, are going with 6Sense at this point. Again, take that for what it’s worth in the sense that, although what we see is very encouraging. Right, it is based on approximately six weeks or so of selling, maybe a little bit longer and we’ve got a long way to go. But as of this point, the vast majority of what we’re selling is 6Sense technology and I think the momentum of that will build as more people are exposed to it, as they see what it can do, the efficiency that it brings, both in with commercial enterprise companies, as well as with recruiters. We haven’t talked about it this evening, but this presents a C change to the world with recruiters and because it can make them either more efficient or it can potentially be a real threat. Okay.

The technology is so strong that I think the recruitment industry has to reconsider -- and I’m talking about recruitment firms have to reconsider their business model in light of what we’ve developed. So it’s going to be very interesting as time goes on and as we move forward, but I think the momentum on this is just building. You also have to remember that the number of customers here in the United States, we’ve introduced them in the United States but there was significant change in the technology that’s used by different company and we migrated roughly about half at this point to the technology that would allow them to use Trovix. Over the next -- during this quarter, we will migrate the remainder. So the results we’re talking about are only with less -- about half or so of the customers having availability to actually use the product. I think there’s much more to come and we have beta tested it in Europe, for example, the U.K., and let’s just say we’re very anxious to introduce it and to put it into play there and to be able to actually sell it, which will come in the near term, the next few months.

Robert Jones

Okay. With that let me end the call and once again, thank you for joining us this afternoon. You can access the call on the investor relations section of the Monster Worldwide website. And as always, please feel free to call me any time at 212-351-7032 with any further questions. Thank you very much.

Salvatore Iannuzzi

And please vote for the beaver at the Super Bowl.

Robert Jones

Thank you.

Operator

Ladies and gentlemen, this does conclude today’s conference call. You may now disconnect.