RCRT: Recruiter.com Gets Off to a Slower Start in 2022 as Recruiters Need to Redeploy
NASDAQ:RCRT
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2022 starts with challenges for Recruiter.com (NASDAQ:RCRT) as it works to redeploy recruiters to new customers. In Q4 the company took a reserve for a collection problem with a partner and as a result was required by the auditors to stop recognizing revenues from this partner and is now in litigation to collect. While some of the moneys owed may be ultimately collected, for the time being it a reserve was taken for bad debt.
Specifically, Recruiter.com is currently pursuing two related collections matters against BKR Strategy Group. Starting in the third quarter of 2021, BKR Strategy Group subcontracted Recruiter.com to perform on-demand recruiter services on behalf of BKR Strategy Group’s clients. Although payments for services rendered were initially received in a timely fashion, BKR Strategy Group’s balance grew throughout the third and fourth quarters of 2021. This led to BKR Strategy Group executing a promissory note with a payment schedule for $500,000 on November 30, 2021. After failing to meet the payment schedule and after repeated attempts to collect the balance due, Recruiter.com filed two lawsuits against BKR Strategy Group on February 18, 2022, the first, to collect on unpaid invoices and the second, to enforce the promissory note, for a total sum of $1,400,000.
In Q4 the company was unable to recognize revenues from this partner of about $600,000 but had to pay for the services provided reducing gross margins well below the norm. We expect to see some lost revenues in Q1 also with the added costs. All work was stopped for this partner in January, but it will take some time to redeploy recruiters to new customers, and some momentum will be lost in its recruiter on demand business. As a result, we are reducing estimates for 2022. Another issue is this also reduces the cash available to the company and as it is in a cash flow negative position, we expect it to seek to raise cash soon.
Despite this, 2022 is expected to be another year of excellent growth for Recruiter.com even without any new acquisitions. The market for recruiting services remains strong, the labor market continues to suffer from a lack of employees, and recruiters are the second most sought after job position that needs filling today. Recruiter.com fills that need by providing recruiters on demand for employers as well as software and services to help in-house recruitment. So far the company has seen no slowdown in industry demand and continued marketing efforts have increased awareness of the availability of the Recruiter on Demand model.
We have revised 2022 estimates downward to reflect a slow start to the year. We now expect revenues of $34.4 million versus $22.2 million in 2021, or growth of 55% compared with the 161% growth just reported for 2021. Recruiter.com now trades at an enterprise value of $38 million, or an EV/2022 Sales of 1.1x times compared to the blended multiple of 5.8 times of its peers. We believe growth, expanding margins, and more analyst coverage, could increase the stock’s appeal and cause price appreciation.
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