HeadHunter : Announces First Quarter 2023 Financial Results

HeadHunter Group PLC Announces First Quarter 2023 Financial Results

MOSCOW, Russia, May 16, 2023 - HeadHunter Group PLC (Nasdaq: HHR, MOEX: HHRU) (the "Company" or the "Group") announced today its financial results for the first quarter ended March 31, 2023. As used below, references to "we," "our," "us" or the "Company" or similar terms shall mean HeadHunter Group PLC.

First Quarter 2023 Financial and Operational Highlights
(in millions of RUB(1) and USD(2))	Three		Three
	months		months				Three
	ended		ended				months
	March 31,		March 31,				ended March
	2023		2022		Change(3)	31, 2023
	RUB		RUB				USD(4)
Revenue	5,552		4,452	24.7%	72.0
Russia Segments(6) Revenue	5,110		4,112	24.3%	66.3
Net Income	2,208	562	293.1%	28.6
Net Income Margin, %	39.8%	12.6%		27.1 ppts
Adjusted EBITDA(5)	3,046	2,295	32.7%	39.5
Adjusted EBITDA Margin, %(5)	54.9%	51.6%		3.3 ppts
Adjusted Net Income(5)	2,168	1,432	51.3%	28.1
Adjusted Net Income Margin, %(5)	39.0%	32.2%		6.9 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 throughout this release 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 March 31, 2023 (RUB 77.0863 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 from the nearest IFRS measures.
6. Includes our "Russia (hh.ru)" and "Russia (Zarplata.ru)" operating segments revenue.
7. • Revenue increased 24.7%, compared to the three months ended March 31, 2022. In the first quarter of 2023, we saw significant recovery in customer activity across all segments, which coupled with our pricing initiatives, has been driving the growth in revenue.
   • Net income increased by ₽1,646 million, or 293.1%, mostly due to the increase in revenue, foreign exchange income on cash deposits in foreign currency and due to the impairment charge of ₽530 million occurring in the first quarter of last year.
   • Adjusted EBITDA increased 32.7%, and Adjusted EBITDA Margin increased by 3.3 ppts from 51.6% to 54.9%, compared to the three months ended March 31, 2022, mainly due to the increase in revenue.

(in millions of RUB and USD)	As of		As of				As of
	March 31,		December				March 31,
	2023		31, 2022		Change	2023
	RUB			RUB				USD
Net Working Capital(1)	(8,013)			(7,415)	8.1%	(104.0)
Net Cash(1)	4,713			1,777	165.3%	61.1

1. Net Working Capital and Net Cash are non-IFRS financial measures. See "Use of Non-IFRS Financial Measures" elsewhere in this release for calculation of these measures.
2. • Negative Net Working Capital as of March 31, 2023 increased by ₽599 million in absolute terms, or 8.1%, compared to December 31, 2022, primarily due to an increase in sales and corresponding increase in customer prepayments.
   • Net Cash as of March 31, 2023 was ₽4,713 million, compared to Net Cash as of December 31, 2022 of ₽1,777 million, primarily due to an increase in the cash balance (see "Cash Flows").

Operating Segments

For management purposes, we are organized into operating segments based on the geography of our operations or other subdivisions as presented in internal reporting to our chief operating decision-maker ("CODM"). Our operating segments include "Russia (hh.ru)," "Russia (Zarplata.ru)," "Belarus," "Kazakhstan, "Skillaz," and other segments. As each segment, other than "Russia (hh.ru)" individually comprises less than 10% of our revenue, for reporting purposes we combine all segments other than "Russia (hh.ru)" 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

1. 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. 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 and current geopolitical events, 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 (which is not the case for some exceptional years due to rapid change in revenue dynamics throughout the year, e.g. in 2020 as a result of COVID-19 pandemic and in 2022 as a result of geopolitical events).

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 81.8% and 79.2% of our total operating costs and expenses (exclusive of depreciation and amortization) for the years ended December 31, 2022 and December 31, 2021, 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 first quarter segment external expenses in our "Russia (hh.ru)" segment in 2022 and 2021 were 22.8% and 20.7%, respectively, of total "Russia (hh.ru)" 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. Our profitability is also affected by our decisions on timing of expenses, as described above.

Contract liabilities

Our contract liabilities are mostly 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 the 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, 2022 were ₽5,187 million, ₽4,614 million, ₽4,466 million, and ₽5,638 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 costs and 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 Working Capital

Our Net Working Capital is primarily affected by changes in our contract liabilities. As our contract liabilities have usually been highest in the fourth quarter, our Net Working Capital has usually been the lowest in the fourth quarter. For example, our Net Working Capital as of March 31, June 30, September 30, and December 31, 2022 was ₽(6,630) million, ₽(5,913) million, ₽(6,040) million, and ₽(7,415) million, respectively.

First Quarter 2023 Results

Our revenue was ₽5,552 million for the three months ended March 31, 2023, compared to ₽4,452 million for the three months ended March 31, 2022. The 24.7% increase was driven by an increase in the number of paying customers coupled with growth in average revenue per customer ("ARPC") across all customer segments driven by the average usage in our Small and Medium Accounts segment, reflecting recovery of customer activity, as well as implementation of our long-term monetization strategy.

The following table breaks down revenue by product for the periods indicated:

	For the three months ended
			March 31,
(in thousands of RUB)
2023	2022		Change
Bundled Subscriptions	1,495,078	1,230,801	21.5%
CV Database Access	999,420	844,394	18.4%
Job Postings	2,550,069	1,948,147	30.9%
Other value-added services	507,775		428,192		18.6%
Total revenue	5,552,342	4,451,534	24.7%

The following tables set forth our revenue, number of paying customers and ARPC, broken down by type of customer and region, for the periods indicated:

For the three months ended

March 31,

Revenue (in thousands of RUB)

Key Accounts in Russia

Moscow and St. Petersburg Other regions of Russia

Sub-total

Small and Medium

Accounts in Russia

2023 2022 Change

1,376,938	1,099,149	25.3%
528,159	406,141	30.0%
1,905,097	1,505,290	26.6%

Moscow and St. Petersburg	1,596,759	1,336,078	19.5%
Other regions of Russia	1,417,109	1,088,898	30.1%
Sub-total
3,013,868	2,424,976	24.3%
Foreign customers of Russia segment	16,380	29,842	(45.1)%
Other customers in Russia	174,627	151,408	15.3%
Total for "Russia" operating segments
5,109,972	4,111,516	24.3%
Other segments	442,370	340,018	30.1%
Total revenue	5,552,342	4,451,534	24.7%
Number of paying customers
Key Accounts
Moscow and St. Petersburg	5,929	5,457	8.6%
Other regions of Russia	7,089	6,369	11.3%
Key Accounts, total
13,018	11,826	10.1%
Small and Medium Accounts
Moscow and St. Petersburg	88,569	84,037	5.4%
Other regions of Russia	148,567	132,091	12.5%
Small and Medium Accounts, total
237,136	216,128	9.7%
Foreign customers of Russia segments	939	1,208	(22.3)%
Total for "Russia" operating segments
251,093	229,162	9.6%
Other segments, total	20,127	15,023	34.0%
Total number of paying customers
271,220	244,185	11.1%
ARPC (in RUB)
Key Accounts
Moscow and St. Petersburg	232,238	201,420	15.3%
Other regions of Russia	74,504	63,768	16.8%
Key Accounts, total
146,343	127,286	15.0%
Small and Medium Accounts
Moscow and St. Petersburg	18,028	15,899	13.4%
Other regions of Russia	9,539	8,244	15.7%
Small and Medium Accounts, total
12,709	11,220	13.3%
Other segments, total	21,979	22,633	(2.9)%

In the first quarter of 2023, compared to the first quarter of 2022:

• In our Key Accounts customer segment, revenue increased by 26.6%, through a combination of ARPC growth and an increase in the number of paying customers.

1. ARPC in our Key Accounts customer segment increased by 15.0%, mostly due to pricing initiatives effective from January 2023.

• 1. The number of paying customers in our Key Accounts customer segment increased by 10.1%, reflecting increase in hiring activity and reengagement of customers, especially in regional Key Accounts.
• In our Small and Medium Accounts customer segment, revenue increased by 24.3%, on the back of the increase in hiring activity of our customers and subsequent increase in the number of paying customers, as well as the increase in ARPC driven by average usage and pricing.
• 1. ARPC in our Small and Medium Accounts customer segment increased by 13.3%. This was driven primarily by the recovery of demand for candidates and subsequent increase in average consumption of job postings services available on our platform.

1. The number of paying customers in our Small and Medium Accounts customer segment increased by 9.7%, mainly driven by recovering hiring activity and demand for candidates.

In our Other segments, revenue increased by 30.1%, primarily in our "Kazakhstan" operating segment, largely as a result of acquisition of new customers.

Operating costs and expenses (exclusive of depreciation and amortization)

Operating costs and expenses (exclusive of depreciation and amortization) for the three months ended March 31, 2023 were ₽2,663 million compared to ₽2,480 million for the three months ended March 31, 2022, representing an increase of ₽183 million, or 7.4%.

The following table sets forth operating costs and expenses (exclusive of depreciation and amortization) for the periods indicated:

		For the three months ended
(in thousands of RUB)		March 31,
2023	2022	Change

Personnel expenses	(1,526,209)		(1,444,098)		5.7%
Marketing expenses	(640,781)	(619,111)	3.5%
Other general and administrative expenses:
Subcontractors and other expenses
related to provision of services	(130,603)	(107,492)	21.5%
Office rent and maintenance	(91,667)	(83,312)	10.0%
Professional services	(161,541)	(111,487)	44.9%
Insurance expense	(31,490)	(40,285)	(21.8)%
Hosting and other web-site maintenance	(32,594)	(23,240)	40.2%
Other operating expenses	(48,583)	(51,243)	(5.2)%
Operating costs and expenses (exclusive
of depreciation and amortization)	(2,663,468)	(2,480,268)	7.4%