Demand for Talent Management drives 25% revenue growth during third quarter

Q3 2008 Highlights vs. Q3 2007

  • Revenue up 25% to €31.8m
  • Increased EBITDA margin at 19%
  • Cash flow from operations up 33% to €5.0m from €3.8m
  • Signed a record single contract for Online: commitment in excess of €1.3m to end of 2009
  • Record third quarter demand for talent management products: 95 new customers and continued extension of customer commitments.

London, 23rd October 2008 – StepStone, a leading global provider of total talent solutions, reported a 25% increase in third quarter revenues to €31.8m, from €25.4m in Q3 2007. Underlying organic revenue growth excluding recent acquisitions was a healthy 21%.

StepStone operates a unique business model. The “Software as a Service” products generate predictable revenues and cash flows whilst the online products continue to benefit from the ongoing structural shift away from traditional media to online search and matching.

The company strategy is to have a portfolio of products delivered to a wide geographic base of customers. The volume based online products enhance the company’s ability to take advantage of favourable economic conditions, whilst the software as a service based talent management products soften the impact of potential adverse economic conditions due to the inherent predictability of the monthly revenue streams from an increasing international customer base.

EBITDA for the third quarter was €6.1m, up from €4.5m a year ago. EBITDA margin increased to 19% from 18%.

Online

Demand for the company’s online products increased in September after the traditionally slower summer months of July and August.  Total invoiced sales of online products in the third quarter of 2008 were up 24% versus the same period last year.  The current quarter sales will impact future quarter revenues due to the deferred revenue recognition model which the company uses.

Online demand in European markets is however developing at markedly different rates. StepStone’s online sales in Germany continued to grow at a rate consistent with that of the last few quarters, whilst there is a clear deceleration of growth rate in most other markets.

Online revenue in Q3 2008 was €18.5m, 21% higher than the same quarter in 2007. The underlying organic growth rate was 17%.

EBITDA delivered in the quarter was €5.8m compared to €4.6m in Q3 2007. The margin was 31%, up from 30% in Q3 2007. 

Solutions

Demand for the company’s talent management products remained robust during the quarter, attracting 95 new talent management customers and the company continued to complete an increasing number of cross sale and up sale transactions amongst its extensive customer base.

By the end of September there were over 1,500 customers using StepStone’s talent management products - providing an increasingly significant and predictable monthly recurring revenue stream.

Solutions revenue was €13.2m in the quarter, 31% higher than the same period in 2007. The underlying organic growth rate was 28%.

Solutions EBITDA was €2.1m, up from €1.4m in Q3 2007. Margins improved to 16% compared to 13% in the same quarter of 2007.

Financial position

The company further strengthened its financial position during the quarter as a result of generating strong operating cash flows and completing a substantial new financing facility.

The company generated €5.0m of operating cash in the quarter bringing the total generated in the year to date to €17.0m. This compares to €15.8m for the whole of 2007.

In July, StepStone entered into a three year, €40m financing facility with Skandinaviska Enskilda Banken AB (“SEB”). Draw downs under this facility are at a small premium over Euribor.

During the third quarter the company took the opportunity to repurchase at or around par value €4.7m of the 2010 outstanding Loan Notes, thus facilitating significant reductions in the future monthly interest cost.

In addition the company settled €3.2m in respect of past acquisitions and repaid €3.8m of the subordinated debt, with all transactions being completed from existing cash balances.

At the end of September the company had €23.7m of cash at bank and €5m of the 2010 Loan Notes payable. €0.4m of the SEB facility has been utilised.

Outlook

StepStone has a portfolio of software products and services delivered to a wide geographic base of customers. Our business is well financed and growing - third quarter revenue growth was 25%.

The final quarter of the year is traditionally the company’s strongest, and we see little reason at present to indicate any change to this fourth quarter trend.

However, after the unprecedented economic turmoil of the last three months, economic conditions are tightening across Europe which is in turn impacting customer confidence.

Our expectation is that overall growth will continue to soften into 2009. In anticipation, the company will continue to closely manage its cost base and cash generation.

The Board looks forward to reporting further year on year improvement in the final quarter of 2008.

The Board
22 October 2008

Contacts

Corporate:
Robin Grainger / Catherine Moran
Brands2Life
020 7592 1200
stepstone@brands2life.com

Financial:
Ian Clapp, Director of Investor Relations
Tel: + 44 7850 128094
Ian Cole, CFO
Tel: +44 7808 946404

Wendy Baker
Hudson Sandler
020 7796 4133
wbaker@hudsonsandler.com