StepStone Publishes Q3 2009 Results

StepStone (OSE:STP) (LSE:STPS) reports strongly increased demand for Solutions products and signs of recovery for Online products; underlying EBITDA of €2.6m (before one time costs) and €1.3m cash generated from operations.

Highlights

First sequential increase in new customer software contracts for a year; record number of increased customer commitments
Launch of new web-based product combining strengths of Online and Solutions
Online invoiced sales at similar levels to previous quarter, halting decline
Revenue of €24.1m (Q2 09: €24.7m) in traditionally slow summer quarter
Recurring revenue from Solutions up by 15% year on year; customer churn remains under 1%
Online business delivering 27% EBITDA margin;
Underlying EBITDA of €2.6m (Q2 09: €2.9m); 11% margin
€1.3m cash generated from operations
Continued improvements to operational efficiency – on target to further reduce cost base to €21m by end of Q1 10.

Results for the quarter

StepStone has reported a solid third quarter in 2009, despite the summer quarter being a historically weak period, thanks to growing sales in its SaaS (software-as-a-service) business combined with clear signs of stabilisation in its Online business. StepStone continues to increase its market share and, based on key indicators, believes that the market has bottomed and it is set to report improving results in 2010.

The company contracted with 71 new customers for its Solutions products, compared to 55 in the second quarter – a nearly 30% sequential increase, and the first increase in over a year. In addition, a new record of 110 existing customers extended their commitments during the quarter. Customer cancellations during the quarter remain minimal at under 1%. Revenue for Solutions was €12.5m (Q2 2009: €12.3m).

The company sold €9.1m of Online products in the third quarter (Q2 2009: €9.3m) slightly ahead of management expectations. The summer quarter is traditionally the quietest trading period for the Online job market and delivering sales that are essentially flat on the prior quarter is very encouraging. The Company expects Q4 2009 to be the first time since Q1 2008 that it will be able to report quarter on quarter growth in sales of Online products.

On 7 September 2009 StepStone announced the launch of Candidate Tracker, a new product that delivers e-recruitment functionality to individual job listings. In the first month over 150 Candidate Tracker units were sold by the existing Online sales team, adding useful incremental revenue to Online sales.

Total revenue in Q3 2009 was €24.1m, only slightly down on the €24.7m reported for Q2 2009 . In Q3 2009, the company delivered underlying adjusted EBITDA of €2.6m (Q2 2009: €2.9m) and generated cash from operations of €1.3m.

The company’s balance sheet remains robust. Cash balances at 30 September 2009 were €30.6m, compared to €30.7m at 30 June 2009. This was after repaying a further €0.5m of debt and investing €1.3m in assets. Borrowings are limited to €2.9m of Loan Notes, repayable in late 2010, and a net €9.4m drawn down on the revolving credit facility, repayable in 2011. The undrawn portion of the revolving credit facility is over €20m.

During the quarter Axel Springer AG, the company’s largest shareholder and one of Europe’s leading media businesses, announced a mandatory offer for the company after acquiring shares that brought its total holding to over 53%. The offer was announced on 11 September at NOK 8.60 per share and, following extensive discussion between Axel Springer and StepStone management, increased to NOK 9.00 per share on 5 October 2009. This represents a 32% premium to the pre-Offer price. The Offer closes on 23 October 2009. The impact of the offer on the company is detailed in the Q3 2009 Quarterly Financial Statements.

The increased investment by Axel Springer, one of Europe’s leading media businesses, underlines the company’s potential and also makes StepStone one of the most strongly backed companies in the talent management space.

Outlook

Q3 2009 has brought real evidence that the rapid decline in our Online business, driven by the economic environment, has come to an end. Current sales forecasts indicate that the Online business is set to show some quarter on quarter revenue growth in 2010. The Solutions business has had a strong quarter, with a sharp increase in new customer contracts and a continuing increase in recurring revenues.

The Company has taken the opportunity, during what has been a very sharp global economic downturn, to strengthen its market position and improve its efficiency ahead of an expected upturn in market conditions. During this challenging period it has remained cash generative, well financed and profitable, and the Board looks forward to continued progress into 2010.

[The full text of this release is available at http://www.stepstone.com/2008/?section=ir&aID=572]