RECRUITER.COM GROUP, INC. The following discussion and analysis should be read in conjunction with our
unaudited interim condensed consolidated financial statements and related notes
appearing elsewhere in this Quarterly Report on Form 10-Q (this "Quarterly
Report"). In addition to historical information, this discussion and analysis
contains forward-looking statements that involve risks, uncertainties, and
assumptions. Our actual results may differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including but
not limited to those set forth under "Risk Factors" in our Annual Report on Form
10-K for the year ended
For purposes of this Quarterly Report, "
Overview
We are a holding company that operates an on-demand recruiting platform
digitally transforming the
We have seven subsidiaries,
We leverage proprietary AI-based candidate sourcing software and other recruitment marketing and candidate sourcing technologies to serve our client's talent needs. For employers needing talent acquisition services, we place independent recruiters from our network with our clients on a project basis. To round out our offerings, we provide other talent acquisition support services, including consulting, staffing, full-time placement services, and talent effectiveness coaching.
Our mission is to help recruit the right talent faster and become the preferred solution for hiring specialized talent.
• Software Subscriptions: We offer a managed service subscription using our
web-based platform and other software tools to help employers recruit talent.
Our Platform allows our customers to source, contact, screen, and sort
candidates using data science, advanced email campaigning tools, and
predictive analytics. As part of our software subscriptions, we offer
enhanced support packages and on-demand recruiting support services for an
additional fee. Depending on the subscription type, additional fees may be
charged when we place a candidate with our customer. In such cases, if the
candidate ceases to be employed by the customer during the initial 90 days
(the 90-day guarantee), we refund the customer in full for all fees paid by
the customer.
• Recruiters on Demand: Consists of a consulting and staffing service
specifically for the placement of professional recruiters, which we market as
Recruiters on Demand. Recruiters on Demand is a flexible, time-based solution
that provides businesses of all sizes access to recruiters on an outsourced,
virtual basis for help with their hiring needs. As with other consulting and
staffing solutions, we procure for our employer clients qualified
professional recruiters and then place them on assignment with our employer
clients. We derive revenue from Recruiters on Demand by billing the employer
clients for the placed recruiters' ongoing work at an agreed-upon, time-based
rate. We directly source recruiter candidates from our network of recruiters.
In addition, we also offer talent planning, talent assessment, strategic
guidance, and organizational development services, which we market as our
"Talent Effectiveness" practice. Companies prepay for a certain number of
consulting hours at an agreed-upon, time-based rate. We source and provide
the independent consultants that provide the service.
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• Full-time Placement: Consists of providing referrals of qualified candidates
to employers to hire staff for full-time positions. We generate full-time
placement revenue by earning one-time fees for each time employers hire one
of the candidates we refer. Employers alert us of their hiring needs through
our Platform, or other communications. We source qualified candidate
referrals for the employers' available jobs through independent recruiter
users that access the Platform and other tools. We support and supplement the
independent recruiters' efforts with dedicated internal employees we call our
internal talent delivery team. Our talent delivery team selects and delivers
candidate profiles and resumes to our employer clients for their review and
ultimate selection. Upon the employer hiring one or more of our candidate
referrals, we earn a "full-time placement fee," an amount separately
negotiated with each employer client. The full-time placement fee is
typically either a percentage of the referred candidates' first-year base
salary or an agreed- upon flat fee.
• Marketplace: Our "Marketplace" category comprises services for businesses and
individuals that leverage our online presence. For businesses, this includes
sponsorship of digital newsletters, online content promotion, social media
distribution, banner advertising, and other branded electronic
communications, such as in our quarterly digital publication on recruiting
trends and issues. We earn revenue as we complete agreed upon marketing
related deliverables and milestones using pricing and terms set by mutual
agreement with the customer. In some cases, we earn a percentage of revenue a
business receives from attracting new clients by advertising on our Platform.
Businesses can also pay us to post job openings on our proprietary job boards
to promote open job positions they are trying to fill. In addition to its
work with direct clients, we categorize all online advertising and affiliate
marketing revenue as Marketplace.
For individuals, Marketplace includes services to assist with career
development and advancement, including a resume distribution service that
involves promoting these job seekers' profiles and resume to help procure
employment, upskilling and training. Our resume distribution service allows a
job seeker to upload their resume to our database, which we then distribute
to our network of recruiters on the Platform. We earn revenue from a one-time
flat fee for this service. We also offer a recruiter certification program
encompassing our recruitment-related training content, which we make
accessible through our online learning management system. Customers of the
recruiter certification program use a self-managed system to navigate through
a digital course of study. Upon completion of the program, we issue a
certificate of completion and make available a digital badge to certify their
achievement for display on their online recruiter profile on the Platform.
Additionally, we partner with Careerdash, a high-quality training company, to
provide Recruiter.com Academy , an immersive training experience for career
changers.
• Consulting and Staffing: Consists of providing consulting and staffing
personnel services to employers to satisfy their demand for long- and
short-term consulting and temporary employee needs. We generate revenue by
first referring qualified personnel for the employer's specific talent needs,
then placing such personnel with the employer, but with our providers acting
as the employer of record for us, and finally, billing the employer for the
time and work of our placed personnel on an ongoing basis. Our process for
finding candidates for consulting and staffing engagements largely mirrors
our process for full-time placement hiring. This process includes employers
informing us of open consulting and temporary staffing opportunities and
projects, sourcing qualified candidates through the Platform and other
similar means, and, finally, the employer selecting our candidates for
placement after a process of review and selection. We bill these employer
clients for our placed candidates' ongoing work at an agreed-upon, time-based
rate, typically on a weekly invoicing schedule.
The costs of our revenue primarily consist of employee costs, third-party staffing costs and other fees, outsourced recruiter fees, and commissions based on a percentage of Recruiting Solutions gross margin.
Our results of operations and financial condition may be impacted positively and
negatively by certain general macroeconomic and industry-wide conditions, such
as the effects of the COVID-19 pandemic and general hiring demand. The recent
COVID-19 pandemic dramatically affected the US economy and the job market.
Unemployment peaked at 14.7% in April of 2020. Since then, labor markets have
continually improved, with the unemployment rate remaining at 3.5% in September
of 2022 according to the
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Our management team believes that COVID-19 accelerated significant technology trends that had already existed before the pandemic. For example, the gig economy's growth (i.e., temporary, flexible jobs) was facilitated by technology, virtual and remote telework with video, and the emergence of on-demand labor through online marketplaces all happened before the crisis. The necessity of lockdowns and business closures drove increased technology adoption and rapidly moved these trends. Virtual hiring services may continue to trend up, in particular if telework continues as a trend and the job market stays strong.
Demand for recruiting solutions have been relatively strong throughout 2022, as certain clients re-opened, accelerated their hiring initiatives, and invested in specialized talent, but management cannot guarantee its continuance. Management has seen signs of pullbacks in demand for recruiting solutions, in particular within the technology sector. We continue to closely monitor the confidence of recruiters and employers and their respective job requirement load through offline discussions and our Recruiter Index survey, as well as other macro-conditions, such as the COVID-19 pandemic and the possibility of a recessionary environment.
We also may depend on raising additional debt or equity capital to stay operational. The economic impact of COVID-19, recession or other macro-economic factors may make it more difficult for us to raise additional capital when needed. The terms of any financing, if we are able to complete one, may not be favorable to us.
Quarter Overview
During the three months ended
Overall, we continued our shift toward on-demand recruiting, re-orienting toward high-margin, scalable business.
Our key highlights during the three and nine months ended
Select Achievements:
• Launched Recruiter.com shortlist, a service to provide clients a shortlist
of ten hand-selected candidates to help fill open roles;
• Selected by Deel, a platform that streamlines worldwide compliance and
payments for international teams, to join their exclusive new Talent
Marketplace ?
• Partnered with Professional Diversity Network, Inc. to help employers
access diverse talent?
• Announced a partnership with Oyster, a global employment platform, to help
growing companies hire top talent?
• Announced a partnership with Velocity Global, a global work platform, to
allow platforms to achieve greater business productivity and provides
seamless solutions to clients; and
• Signed an Accounts Receivable-backed with recourse factoring agreement to
support our growth from Bay View Funding, a subsidiary of Heritage Bank of
Commerce (HTBK), a premier community business bank in the heart of Silicon
Valley
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Since
• Completed a $2.25 million financing by Montage Capital , a pioneer in the
growth debt market; and announced cost reductions focused on streamlining
our service delivery operation and reducing management overhead; and
• Signed a Strategic Partnership Agreement with Talent, Inc. , a career
platform, establishing the terms for a revenue-sharing partnership in
order to better monetize Recruiter.com's career communities.
Results of Operations
Three Months Ended
Revenue
We had revenue of
Cost of Revenue
Cost of revenue was
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Our gross profit for the three-month period ended
Operating Expenses
We had total operating expense of
Sales and Marketing
Our sales and marketing expense for the three-month period ended
Product Development
Our product development expense for the three-months ended
Amortization of Intangibles
For the three-month period ended
For the three-month period ended
General and Administrative
General and administrative expense for the three-month period ended
Other Income (Expense)
Other expense for the three-month period ended
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Net Income (Loss)
For the three-months ended
Nine Months Ended
Revenue
We had revenue of
Cost of Revenue
Cost of revenue was
Our gross profit for the nine-month period ended
Operating Expenses
We had total operating expense of
Sales and Marketing
Our sales and marketing expense for the nine-month period ended
Product Development
Our product development expense for the nine-months ended
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Amortization of Intangibles
For the nine-month period ended
For the nine-month period ended
General and Administrative
General and administrative expense for the nine-month period ended
Other Income (Expense)
Other income (expense) for the nine-month period ended
Net Income (Loss)
For the nine-months ended
Non-GAAP Financial Measures
The following discussion and analysis includes both financial measures in accordance with Generally Accepted Accounting Principles, or GAAP, as well as non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flows that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP financial measures should be viewed as supplemental to, and should not be considered as alternatives, to net income, operating income, and cash flow from operating activities, liquidity or any other financial measures. They may not be indicative of our historical operating results nor are they intended to be predictive of potential future results. Investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP.
Our management uses and relies on EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. We believe that both management and shareholders benefit from referring to the following non-GAAP financial measures in planning, forecasting and analyzing future periods. Our management uses these non-GAAP financial measures in evaluating its financial and operational decision making and as a means to evaluate period-to-period comparison. Our management recognizes that the non-GAAP financial measures have inherent limitations because of the described excluded items.
We define Adjusted EBITDA as earnings (or loss) from continuing operations before the items in the table below. Adjusted EBITDA is an important measure of our operating performance because it allows management, investors and analysts to evaluate and assess our core operating results from period-to-period after removing the impact of items of a non-operational nature that affect comparability.
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We have included a reconciliation of our non-GAAP financial measures to the most
comparable financial measure calculated in accordance with GAAP. We believe that
providing the non-GAAP financial measures, together with the reconciliation to
GAAP, helps investors make comparisons between us and other companies. In making
any comparisons to other companies, investors need to be aware that companies
use different non-GAAP measures to evaluate their financial performance.
Investors should pay close attention to the specific definition being used and
to the reconciliation between such measure and the corresponding GAAP measure
provided by each company under applicable
The following table presents a reconciliation of net loss to Adjusted EBITDA
(loss):
Three Months Ended September 30,
2022 2021
Net Income (loss) $ (5,626,365 ) $ (7,650,076 )
Interest expense and finance cost, net 208,351 167,728
Depreciation & amortization 955,774 842,934
EBITDA (loss) (4,462,240 ) (6,639,414 )
Bad debt expense 115,363 20,579
Warrant Modification Expense - 12,623
Loss (gain) on change in fair value of
derivative - 887,791
Impairment expense 2,129,101 2,530,325
Stock-based compensation 668,714 1,928,646
Restricted Stock Units issued for services 97,029 -
Adjusted EBITDA (Loss) $ (1,452,033 ) $ (1,259,450 )
Nine Months Ended September 30,
2022 2021
Net loss $ (10,997,463 ) $ (10,401,863 )
Interest expense and finance cost, net 340,257 3,188,138
Depreciation & amortization 2,881,967 1,677,202
EBITDA (loss) (7,775,239 ) (5,544,964 )
Bad debt expense 479,065 79,305
Gain on debt extinguishment (1,205,195 ) (24,925 )
Initial derivative expense - 3,585,983
Warrant modification expense - 12,623
Loss (gain) on change in fair value of
derivative - (7,315,580 )
Impairment expense 2,129,101 2,530,325
Restricted Stock Units issued for services 424,265 -
Stock-based compensation 2,991,405 3,543,887
Adjusted EBITDA (Loss) $ (2,956,598 ) $ (3,133,346 )
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Liquidity and Capital Resources
For the nine months ended
For the nine months ended
For the nine months ended
For the nine months ended
Based on cash on hand as of
Our condensed unaudited consolidated financial statements are prepared using
generally accepted accounting principles in
Our historical operating results indicate substantial doubt exists related to our ability to continue as a going concern. We can give no assurances that any additional capital that we are able to obtain, if any, will be sufficient to meet our needs, or that any such financing will be obtainable on acceptable terms. If we are unable to obtain adequate capital, we could be forced to cease operations or substantially curtail our commercial activities. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities should we be unable to continue as a going concern.
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To date, equity offerings have been our primary source of liquidity and we
expect to fund future operations through additional securities offerings. We
have also entered into arrangements with factoring companies to receive advances
against certain future accounts receivable in order to supplement our liquidity.
Effective
Financing Arrangements Promissory Notes Payable
We issued a promissory note for
We issued a promissory note in the original principal amount of
On
On
At
Factoring Arrangement
We entered into a factoring agreement with
Pursuant to the Factoring Agreement, we will sell certain trade accounts receivable to the Buyer. We are charged a finance fee, defined as a floating rate per annum on outstanding advances under the Factoring Agreement, equal to the prime rate plus 3.25% due on the first day of each month. We are also charged a factoring fee of 0.575% of the gross face value of any trade accounts receivables for the first 30 days from when the trade accounts receivable is purchased and 0.30% for each fifteen days afterward.
We receive advances of up to 85% of the amount of eligible trade accounts
receivable. Advances outstanding shall not exceed the lesser of
Off-Balance Sheet Arrangements
None.
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Critical Accounting Estimates and Recent Accounting Pronouncements
Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results and outcomes may differ from management's estimates and assumptions. Included in these estimates are assumptions used to estimate collection of accounts receivable, fair value of marketable securities, fair value of assets acquired and liabilities assumed in asset acquisitions and the estimated useful life of assets acquired, fair value of contingent consideration in asset acquisitions, fair value of derivative liabilities, fair value of securities issued for acquisitions and business combinations, fair value of assets acquired and liabilities assumed in business combinations, fair value of intangible assets, software for internal use capitalized, and goodwill, valuation of lease liabilities and related right of use assets, deferred income tax asset valuation allowances, and valuation of stock based compensation expense.
Revenue Recognition Policy
We recognize revenue in accordance with the
We generate revenue from the following activities:
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We have a sales team and sales partnerships with direct employers as well as Vendor Management System companies and Managed Service companies that help create sales channels for clients that buy staffing, direct hire, and sourcing services. Once we have secured the relationship and contract with the interested Enterprise customer the delivery and product teams will provide the service to fulfill any or all of the revenue segments.
Revenues as presented on the statement of operations represent services rendered to customers less sales adjustments and allowances.
Software subscription revenues are recognized over the term of the subscription for access to services and/or our web-based Platform. Revenue is recognized monthly over the subscription term. Talent effectiveness subscription revenues are recognized over the term of the subscription when services are provided. Any payments received prior to the time passing to provide the subscription services are recorded as a deferred revenue liability. Revenue generated from the enhanced support package and on-demand support are recognized at the point-in-time when the service is provided. Revenue generated from placement fees that are related to the software subscription are recognized at the point-in-time when the 60 or 90-day guarantee expires.
Recruiters on Demand services are billed to clients as either monthly subscriptions or time-based billings. Revenues for Recruiters on Demand are recognized on a gross basis when each monthly subscription service is completed. Talent Effectiveness consulting services are billed to clients upfront for a period of months. Revenue is recognized on a gross basis monthly over the period the consulting services are provided.
Full time placement revenues are recognized on a gross basis when the guarantee period specified in each customer's contract expires. Under certain circumstances, guarantee periods with a customer may be fully or partially waived in exchange for the Company providing a discount to the customer on the recruiting fees. No fees for direct hire placement services are charged to the employment candidates. Any payments received prior to the expiration of the guarantee period are recorded as a deferred revenue liability. Payments for recruitment services are typically due within 90 days of completion of services.
Marketplace Solutions revenues are recognized either on a gross basis when the advertising is placed and displayed or when lead generation activities and online publications are completed, which is the point at which the performance obligations are satisfied. Payments for marketing and publishing are typically due within 30 days of completion of services.
Marketplace advertising revenues are recognized on a gross basis when the advertising is placed and displayed or when lead generation activities and online publications are completed, which is the point at which the performance obligations are satisfied. Payments for marketing and publishing are typically due within 30 days of completion of services. Job posting revenue is recognized at the end of the period the job is posted. Marketplace career services revenues are recognized on a gross basis upon distribution of resumes or completion of training courses, which is the point at which the performance obligations are satisfied. Payments for career services are typically due upon distribution or completion of services.
Consulting and Staffing Services revenues represent services rendered to customers less sales adjustments and allowances. Reimbursements, including those related to travel and out-of-pocket expenses, are also included in the net service revenues and equivalent amounts of reimbursable expenses are included in costs of revenue. We record substantially all revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of this line of revenues and expenses. We have concluded that gross reporting is appropriate because we have the task of identifying and hiring qualified employees, and our discretion to select the employees and establish their compensation and duties causes us to bear the risk for services that are not fully paid for by customers. Consulting and staffing revenues are recognized when the services are rendered by the temporary employees. Payroll and related taxes of certain employees that are placed on temporary assignment are outsourced to third party payors or related party payors. The payors pay all related costs of employment for these employees, including workers' compensation insurance, state and federal unemployment taxes, social security and certain fringe benefits. We assume the risk of acceptability of the employees to customers. Payments for consulting and staffing services are typically due within 90 days of completion of services.
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Deferred revenue results from transactions in which the Company has been paid for services by customers, but for which all revenue recognition criteria have not yet been met. Once all revenue recognition criteria have been met, the deferred revenues are recognized.
Sales tax collected is recorded on a net basis and is excluded from revenue.
Intangible Assets
Intangible assets consist primarily of the assets acquired from Genesys in 2019,
including customer contracts and intellectual property, acquired on
Goodwill
We perform our annual goodwill impairment assessment on
When evaluating the potential impairment of goodwill, management first assess a range of qualitative factors, including but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for our products and services, regulatory and political developments, entity specific factors such as strategy and changes in key personnel, and the overall financial performance for each of our reporting units. If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we then proceed to the impairment testing methodology primarily using the income approach (discounted cash flow method).
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We compare the carrying value of the reporting unit, including goodwill, with its fair value, as determined by its estimated discounted cash flows. If the carrying value of a reporting unit exceeds its fair value, then the amount of impairment to be recognized is recognized as the amount by which the carrying amount exceeds the fair value.
When required, we arrive at our estimates of fair value using a discounted cash flow methodology which includes estimates of future cash flows to be generated by specifically identified assets, as well as selecting a discount rate to measure the present value of those anticipated cash flows. Estimating future cash flows requires significant judgment and includes making assumptions about projected growth rates, industry-specific factors, working capital requirements, weighted average cost of capital, and current and anticipated operating conditions. The use of different assumptions or estimates for future cash flows could produce different results.
Long-lived assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. We periodically evaluate whether events and circumstances have occurred that indicate possible impairment. When impairment indicators exist, we estimate the future undiscounted net cash flows of the related asset or asset group over the remaining life of the asset in measuring whether or not the asset values are recoverable.
Derivative Instruments
Our derivative financial instruments consist of derivatives related to the
warrants issued with the sale of our preferred stock in 2020 and 2019 and the
warrants issued with the sale of convertible notes in 2020 and subsequently in
Stock-Based Compensation
We account for all stock-based payment awards made to employees, directors and others based on their fair values and recognizes such awards as compensation expense over the vesting period for employees or service period for non-employees using the straight-line method over the requisite service period for each award as required by FASB ASC Topic No. 718, Compensation-Stock Compensation. If there are any modifications or cancellations of the underlying vested or unvested stock-based awards, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense, or record additional expense for vested stock-based awards. Future stock-based compensation expense and unearned stock- based compensation may increase to the extent we grant additional stock options or other stock-based awards.
Recently Issued Accounting Pronouncements
There have not been any recent changes in accounting pronouncements and ASU issued by the FASB that are of significance or potential significance to us except as disclosed below.
In
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In
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