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HeadHunter Group PLC (HHR) Q3 2021 Earnings Call Transcript

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HHR earnings call for the period ending September 30, 2021.

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HeadHunter Group PLC (HHR 0.27%)
Q3 2021 Earnings Call
Nov 15, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to today's Third Quarter 2021 Financial Results Conference Call. [Operator Instructions]

And I would now like to hand the conference over to your first speaker today, Arman Arutyunian. Thank you. Please go ahead, sir.

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Arman Arutyunian -- Investor Relations

Thank you. Hello, everyone, and welcome to HeadHunter Group third quarter 2021 earnings call.

Joining me today to discuss our results are Mikhail Zhukov, our Chief Executive Officer; Dmitry Sergienkov, our Deputy Chief Executive Officer; and Grigorii Moiseev, our Chief Financial Officer.

Before we begin, we would like you to remind that today's discussion will contain forward-looking statements. Actual results may differ materially from the results predicted or implied by such statements, and forward-looking statements made today speak only to our expectations as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of the risk factors that could cause actual results to differ, please see the Risk Factors section in our most recent Annual Report on Form 20-F filed with the SEC.

During this call, we'll be referring to some non-IFRS financial measures. These non-IFRS financial measures are not prepared in accordance with IFRS. A reconciliation of the non-IFRS financial measures to the most directly comparable IFRS measures is provided in the earnings release we issued today and the slide presentation, each of which is available on our website at investor.hh.ru.

Now, I'd like to turn the call over to Mikhail.

Mikhail Zhukov -- Chief Executive Officer

Thank you, Arman. Good afternoon, everyone. Thanks for joining us today.

This was an exceptionally solid quarter for our product and business development. Dmitry and Grigorii will walk this through in detail later on, but we have yet again managed to double our revenue base compared to 2020, and hit all major business KPIs. As our user base strikes new historical records, it's essential to stay laser-focused on product innovation and adaptation of our platform to different customer segments.

One of our key product priorities continues to be seamless and enjoyable experience for non-recruitment professionals from SMAs. This customer category has been the key driver of our business growth, and foreign candidate migration to mobile devices, we are now observing similar trends in that area. That is why we decided to come up with fully reworked employer mobile application built on predictive interfaces. It's still early to draw any strong conclusions, but at the moment, we see that the key conversions to use a target actions in the new app have improved by 10% to 20%, thereby delivering high recruitment efficiency and business results for our clients.

On the job seeker sites, we launched wide experiments with employer review functionality, integrated with our strategic partner DreamJob, and that showed very encouraging engagement from both candidates and employers. Even though it's in experimental phase, yet circa 15% of our vacancies already have corporate [Phonetic] use, and we plan to scale the functionality across the entire customer base in the next few quarters.

On the investment side, we have finally made reviews YouDo and now we're institutionally ready to move along our joint strategy in a self-employed market, where we continue to see major growth opportunities for us.

Now, I'll turn it to Dima to walk you through the key highlights of the third quarter. Thank you.

Dmitry Sergienkov -- Deputy Chief Executive Officer

Thank you, Mikhail. Good afternoon. Thank you for joining us on this call.

This quarter, our revenue was RUB4.7 billion and we managed to sustain, as Mikhail said, a triple-digit revenue growth despite a much higher comparison base than in second quarter. Market conditions remained very strong. We have significantly expanded our business across the key strategic areas, including acquisition of small and medium businesses and monetization of key accounts.

Despite a significant increase in marketing spend, our other cost items are significantly behind the top-line expansion, leading to elevated profitability. In Q3 our adjusted EBITDA margin came at 60.4%.

This year, we follow conservative capex policy, resulting in strong cash generation for shareholders. Our capex in Q3 as a percentage of revenue came in just circa 1%.

In terms of performance by operating segments:

In Small and Medium Accounts, revenue increased by 106% year-on-year, driven by both increase in number of paying customers and ARPC growth. Acquisition of new clients explained circa 56 percentage points of revenue growth in small and medium segment. Our total customer base reached 450,000 clients, and this quarter already exceeding full-year 2020.

In Key Accounts segment, average consumption growth and monetization initiatives were the key drivers of our strong performance. Notably, average check in this segment increased by 71% year-on-year, and that is largely explained by new monetization model for subscriptions gaining pace across the customer base.

Geographically, revenue from Moscow and St. Petersburg increased by 98% year-on-year, while revenue from other regions of Russia went up by 110%, which is totally in line with our expansion strategy in Russian regions.

Product dynamics this quarter is somewhat similar to what we've seen in second quarter. Job postings remained the fastest growing area on the back of increased consumption in Small and Medium and Key Accounts. In this competitive environment, clients utilized advertising tools more intensively, leading to ever-growing consumption per client. As a result, the total number of vacancies on the platform reached historical record to 1.1 million, of which over 1 million are paid vacancies. CV Database Access and Bundled Subscription demonstrated 94% and 89% growth year-on-year, respectively, as you can see the growth in subscriptions is kind of conversion with leasing products, thanks to monetization enhancements of the former.

Apart from our core products, we are very satisfied with the solid dynamics of our value-added services, including recruitment automation, branding products, our performance-based solutions, ClickMe and Virtual Recruiter. Skillaz demonstrated yet another strong quarter of customer base expansion, with revenue came close to RUB300 million, representing 200% growth year-on-year and reaching EBITDA break-even level first time in Company's history. This group of value-added services generated over RUB0.5 billion revenues in Q3, yielding growth of 136%. This just underscores market openness for innovative HR tech solutions in today's challenging environment.

Now, turning to our full-year 2021 outlook. This year, as you understand, is particularly difficult to make precise projections. From the one hand, our business performance is exceptionally stronger and market backdrop is bit robust; but on the other hand, the pandemic status in Russia is far from being stable yet. Taking those factors into consideration, we've decided to upgrade our full-year 2021 outlook to 81%, 84% revenue growth range, indicated over RUB15 billion revenues for HeadHunter Group.

Now, here's Grigorii to talk about our profitability and cash flow metrics.

Grigorii Moiseev -- Chief Financial Officer

Yes, thanks Dima, and good afternoon, everyone.

Let me give you some detail first on our expenses and margins. As Dima said, in the third quarter of 2021, the adjusted EBITDA margin exceeded the milestone of 60%. Consolidation of Zarplata and Skillaz diluted margin by circa four percentage points, so therefore, our organic segments' margin was even higher in the ballpark of 64%, which is a significant improvement compared to 56.6% in the same segments in the third quarter of 2020, which was explained mostly by the increase in our revenue.

At the same time, with autumn being the busiest season in work routine, the third quarter is usually the highest quarter of any year in terms of revenue, and consequently, has the lowest expenses as percentage of revenue and the highest margin. Therefore, margin in Q3 is somewhat elevated and we expect it to trend down in Q4. Historically, over the last two years, margin in the fourth quarter was four to 10 percentage points lower compared to the third quarter.

Our total operating expenses excluding depreciation and amortization were circa RUB2 billion in the third quarter of 2021, which was the increase of 69.5% compared to the third quarter of 2020. Adjusted for equity-settled awards, SPO and M&A-related costs, operating expenses were around RUB1.9 billion, which was an 85% increase compared to the third quarter of 2020.

And let me briefly discuss the growth drivers in the key expense markets. First of all, personnel expenses adjusted for equity-settled awards and SPO-related costs increased by 61% year-on-year. About one-third of this growth is explained by consolidations of Zarplata and Skillaz. The other factors were the increase in our headcount by circa 15% or 126 people over the last 12 months, and increase in our sales team bonuses on the back of exceeding revenue targets and wages inflation. As a percentage of revenue, personnel expenses excluding equity-settled awards and SPO-related costs have decreased to 19.3% in Q3 of 2021 from 24.3% in the third quarter of 2020, improving margin by five percentage points. We think that in the fourth quarter, we will sustain this operating leverage and personnel expenses will be the key contributor to our margin expansion in the full-year 2021.

Speaking of personnel expenses, our equity-settled awards increased to RUB136 million in the third quarter of 2021 compared to RUB56 million for the third quarter last year, or by circa RUB80 million. This was mostly due to a new 2021 RSU plan we established in July, under which we granted approximately 250,000 units, or circa 8%, of the total program capacity to approximately 100 of our employees.

Moving on to marketing expenses. They increased significantly by 140% year-on-year outpacing revenue growth. The increase in marketing was mostly due to our decision to increase spending on both performance and brand awareness marketing in 2021, on the back of the increased demand for candidates. In addition, approximately one-third of this growth was due to Zarplata consolidation. As a percentage of revenue, marketing increased to 12% in the third quarter of 2021 compared to 10% in the third quarter of 2020. Going forward, for the full-year of 2021, we think that the operating leverage potential in this bucket will be offset by our decision to increase spending.

Other general and administrative expenses, adjusted for SPO and M&A-related costs, increased by 90% compared to the third quarter last year. The key drivers of this growth were the additional Zarplata and Skillaz, which contributed almost half of the growth in the bucket, as well as an increase in subcontractor costs in our Russia segment due to the increase in revenue from other value-added services and the increase in professional services. As a percentage of revenue other general and administrative expenses adjusted for SPO and M&A-related costs were 8.4%, relatively flat compared to 9% in the third quarter of 2020. In the full-year 2021 results, we expect this expense bucket to remain relatively flat as percentage of revenue compared to last year.

Now, moving on to other key indicators. Our capex in the third quarter of 2021 has decreased to RUB49 million compared to RUB70 million in the third quarter last year as we completed our Moscow office renovation project last year. On the back of the increase in revenue, as Dima already said, capex decreased to circa 1% of revenue in the third quarter, this year, compared to around 3% in the third quarter of 2020.

The networking capital as of the end of Q3 was negative RUB5.1 billion compared to negative RUB3.8 billion as of the end of 2020. And the change was primarily due to customer advances we received.

Income tax expense in the third quarter of 2021 was RUB548 million compared to RUB264 million in the third quarter of 2020. The increase was driven by the increase in revenues and consecutive increase in the taxable profit.

The effective tax rate in the Q3 was 23.7% compared to the 31.1% in the third quarter last year. This decrease was mainly attributable to a non-deductible SPO-related expense last year not occurring in this third quarter.

Now, turning to cash generation metrics in the third quarter of 2021. We generated significant RUB2.5 billion from operating activities compared to RUB902 million in the third quarter last year, primarily driven by the increase in sales. We generated RUB16 million from investment activities compared to RUB50 million used in the third quarter last year, mainly on the back of the increase in interest income on cash deposits.

In financial activities, we used RUB2.4 billion in the third quarter of 2021, mostly to pay an earlier announced dividend for the year 2020 compared to RUB2.1 billion we used on the third quarter last year, which was also mostly attributable to a dividend payout.

Our net debt decreased from RUB5 billion as of the 2020 year-end to RUB2.3 billion as of the end of Q3 2021, primarily due to the increase in cash.

On the back of this increase in net debt and the increase in adjusted EBITDA, our leverage is now 0.3x adjusted EBITDA compared to 1.2x adjusted EBITDA as of the 2020 year-end.

Finally, starting from October 2021, we are making daily repurchases of our ADRs through our broker in a forum on an autonomous buyback program. The program stipulates that during nine months until June 2022 our broker should purchase ADRs for approximately $27 million in more or less equal daily installments. Accordingly, as of November 8, 2021, the most recent date of the broker's report obtainable when we prepared press release, we have repurchased 52,000 ADRs for circa $3 million.

This concludes our presentation of the results of the third quarter of 2021, and we are now opening the floor to your questions. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Thank you. We have questions that came through. The first question comes from the line of Vyacheslav Degtyarev from Goldman Sachs. Your line is now open. Please go ahead.

Vyacheslav Degtyarev -- Goldman Sachs -- Analyst

Yes. Thank you very much for the call. Couple of questions. So, firstly, how do you directionally think over 2022 budgeting? Obviously, I know it's probably too early, but what are the key moving factors to keep in mind over the growth and margins for the next year? Obviously, the base is quite high. But what are the key drivers that will be having lasting effects in the medium term? And maybe how would you split them for the next year between volumes and pricing?

And my second question would be with regard to the mobile product for employers. Can you elaborate what are the user cases there? How popular is that? How differentiated is that versus the competition? And maybe broadly, your other product initiatives that are in the pipeline? Thank you.

Mikhail Zhukov -- Chief Executive Officer

Sorry, Dima, go ahead.

Dmitry Sergienkov -- Deputy Chief Executive Officer

Yes, sure, I can quickly answer the -- kind of the first part of the first question on the budgeting and how we think about next year. Obviously, you're not going to be unduly surprised that at this point of time, it's quite hard to give a kind of precise or official guidance for next year. There are definitely certain moving parts, mostly with regard to the kind of customer base growth next year that would be function of overall market -- labor market situation development.

I think we're having pretty -- at this point of time if you like a look into the 2022, we have quite optimistic view on health. We're going to mix between monetization and the customer base expansion. On monetization, it's more kind of visible already and predictable, because certain initiatives that already kind of kicked in this year, and we can more or less precisely calculate the impact for next year. Obviously, one of the major initiatives would be the kind of the continuous rollout our new subscription model. As I said, this year, this product has been performing exceptionally well, and actually, above our original expectation, the guidance we gave. And the next year, therefore, we're also kind of upgrading our expectations. We believe that this one single kind of monetization is that could define out [Phonetic] of 7% of revenue growth next year.

And on top of that, you'd have the other pricing initiatives. We're going to inflate prices starting from January, not April of this year. So, there'll be some timing difference effect as well. And so with price increase, we expect at least 10% growth in subscriptions in bigger packages of job postings to expect sort of 20% growth plus. Of course, all these components will go on top of those, I already mentioned, the subscription model. And we actually made good progress upgrading our back-end infrastructure and business logic for monetization this year. And next year, we're going to be more intense on the differentiation by professionals roles, regions that should also give us incremental share growth, and also may actually help us to kind of differentiate between Small and Medium businesses and Key Accounts.

So, on monetization, it looks very robust next year. On a customer base, I think it's again -- it's a bit probably premature to guide at the moment, it looks quite strong, right, but again, this situations evolve quite quickly, so it will be hard. And I'll let [Phonetic] Grigorii to comment on expenses situation.

Grigorii Moiseev -- Chief Financial Officer

Yes. So, from me, we are kind of in the middle of the budget session right now. And as we discuss, we definitely see several areas for growth, the numerous, sensitive -- sensible initiatives for the 2022 and certainly it doesn't make sense from our point of view to kind of just cut them off just for the sake of the efforts of profitability. Therefore, as Dima said, we're not prepared to give any guidance at this point on 2022, actually in both revenue growth and margins. What I can say is that the budget will definitely contain certain investment components in terms of the expenses.

I think also important to kind of understand again that the 2021 was the year of very steep revenue growth. And sometimes in some areas we struggled for resources, so probably it's kind of not the best reference points as well for the future planning.

Yes, so I guess that's the comment I can give you on the margin front.

Dmitry Sergienkov -- Deputy Chief Executive Officer

Thanks, Grigorii. I think we can move on to the second question, Vyacheslav, on our new mobile products. I could say that, historically we're a little bit dismissive on kind of mobile platform for employers, because we saw very limited use cases. And most of our clients actually prefer to use either mobile interface while -- well, actually, just while in mobile devices, but not in the app functionality where they just continue to use desktop. So, historically, we didn't invest much in that area. And over the last few years, especially during COVID, that situation has significant change in our view, where we saw pickup in demand and usage and predominantly from overseas small and medium businesses from non-recruitment professionals. And this is how actually we designed this new app.

So, that's clearly designed for a very easy, simplified workflow with the kind of call-to-action approach when lot of predictive actions when you don't need to fill out the details in the machine using some machine learning instruments in backend trying to kind of predict these answers, and then kind of minimize the questions we ask. So that's clear targeted the SMA users.

At the same time we try to kind of factor and incorporate the functionality that is usually very popular among the Key Accounts as well. Like it was up there working with ACIV and the integrations with ATS and for example, communication platform that we introduced in our Job Seeker platform earlier this year, we actually did the same for employer app, because it's becoming kind of core functionality.

And also we delivered our new app especially on Android platform. It's going to be much more stable. And the kind of all the metrics that we collected over the last one-and-a-half months since the launch of the Android platform showed us that that's actually the case. And we look at -- again, it's early to draw some strong conclusions yet, right, and there are a lot of product works required for this new app. But we already see up to 20% improvement in conversions, especially in registration and purchases, et cetera, and for small medium business, we believe that should be quite helpful for all the key metrics and efficiency level platform overall for this category.

Vyacheslav Degtyarev -- Goldman Sachs -- Analyst

Okay. Thank you very much.

Dmitry Sergienkov -- Deputy Chief Executive Officer

Thanks.

Operator

Thank you. And the next question comes from Ivan Kim from Xtellus Capital. Your line is now open. Please go ahead.

Ivan Kim -- Xtellus Capital -- Analyst

Hi, good afternoon. Yes, three questions from my side, please. Firstly, on the fourth quarter, we didn't see any impact on job postings on your platform in November, but if you can just comment on what sort of impact lockdown had or has on your numbers so far?

Secondly, on Skillaz, what sort of growth outlook you foresee for 2022 for Skillaz in particular, ballpark, very wide ranges or directionally would be great. And related question to that is whether you consider further expansion to adjacencies? Because as Skillaz experience shows you increase your target with rest of the market massively with one small acquisition. So, just wondering your view obviously, but if you think about expansion there more aggressively in 2022 in adjacencies? Thank you very much.

Mikhail Zhukov -- Chief Executive Officer

Thanks, Ivan. I'll handle these questions. The first on November lockdown, of course, we saw deceleration in billings and bookings of that week of non-working days. Luckily, it was just a week, but for the majority of the regions. Of course, certain regions extended the term. So, we saw certain underperformance in the shorter-term products, especially for subscriptions, small packages of job posting. So, tell you kind of the -- in rough terms, we lost that week circa 25 percentage points of growth, compared to the previous -- the week before the lockdown. That is clearly a better picture that we observed last year when we're on a constant one working mode in June and May. And that data shows that the business been adopted, to the large extend, being operating in this environment for more than a year already. And especially in Key Accounts, we saw very little disruption. And we -- most of our clients in big enterprises just continued operations as normal. But of course, in Small and Medium businesses, there was, in fact, an impact, but it was not as severe as we saw in previous lockdowns. That's on the lockdown.

And I think on the fourth quarter, otherwise [Phonetic], it's -- so far quarter-to-date, the performance is quite encouraging. But no one knows actually what to expect in the next one months and a half, right? So, the risk of restrictive measures is quite high. And it's not binary. It's not that it's either they're or not. In certain regions they're taking some local decisions, so it's actually having impacts on certain regions. It's quite hard to predict exact impact in the first quarter.

On Skillaz, the fourth quarter, traditionally is the strongest quarter. You may expect that this large contracts that they signed, they tend to be kind of signed at the kind of last minute, when the budgets allocated to the department kind of go off. And historically, I think two, three years in a row, the fourth quarter was strongest. Generally, we believe that they should post circa RUB400 million revenues this year. But there are certain big contracts with very large enterprises that are underway, that actually may kind of be a swing factor here, right, so puts [Phonetic] on an extra sleep next quarter. Therefore, I think Skillaz at this point of time, when they acquired new customers quite intensively, they're a bit of less kind of predictable than compared to HeadHunter. But we expect a strong quarter.

And the last one, I think is quite -- the right one is exactly the one is our thinking that in today's environment, we've seen a lot of opportunities in adjacent areas, and many of them could be actually tackled in kind of a quicker and more efficient way of some small early stage acquisitions. And we actually are quite active in -- on the search out for this type of assets like, Skillaz DreamJob and YouDo et cetera. So I would say, yes, I would guide that on quite high acquisitions within the next two to three years pursuing these opportunities.

Ivan Kim -- Xtellus Capital -- Analyst

Great. Thank you very much.

Operator

Thank you. And the next question comes from the line of Luke Holbrook from Morgan Stanley. Your line is now open. Please go ahead.

Luke Holbrook -- Morgan Stanley -- Analyst

Thank you for letting me on the call. Congratulations on a strong set of results. I just had a question on market share dynamics. Given your strong revenue performance this quarter. I just wondered if you could comment a bit on what you were seeing in the regions in particular? How has the plan to change that dynamic a bit as well, particularly in and around Siberia regions? And do you feel that you're gaining share at this point in time? And then I've just got a follow-up after that. Thank you.

Mikhail Zhukov -- Chief Executive Officer

Yes, sure. Luke, thanks for question. Well, regional businesses performing stronger than in terms of growth than in the capital cities, in Moscow and St. Petersburg, it's 110% growth. And, in particular, in Zarplata, region in Ural and Siberia, is one of the strongest areas where we have the probably the biggest market share, even compared to Moscow. Where is the main story? And that actually kind of resulted in the quicker distillation fact that we deliver over 95% of all applications in the Equatorial group for example, right? So it's like the whole market delivers just 5% if you take out the -- absent Zarplata.

So, it's a very, very strong regions. I'd say Zarplata is slightly underperforming HeadHunter, and I think we always guided this way because they are deprived for certain benefits of national wide very effective marketing that we are enjoying -- therefore, their revenue is not growing as fast as HeadHunter. So, we kind of grabbing share from Zarplata, but combined with Zarplata collectively, we definitely in a ever strong position. So, I think that that actually kind of works a lot of monetization potentials offer us.

Luke Holbrook -- Morgan Stanley -- Analyst

Okay, thanks. And just in terms of then your marketing spend that you mentioned there? Is there a certain regional or product focus or you're targeting more blue collar or white collar? Would you split it like that in turn, any color that would be useful?

Grigorii Moiseev -- Chief Financial Officer

Yes, Luke, this is Grigorii. Really, I don't think I can give you the kind of details by marketing channel or by segment, because for kind of competition reason, we prefer not to go into be so much detail, right? But what I probably can tell you is that in the second quarter of this year, and in the third as well, we are strengthening market channel on both brand awareness formats such as outdoor campaign for instance, and performance marketing as well, as we see kind of high demand for candidates, and also on the back of kind of lower key, which are job seekers. So we think it makes all the sense to spend more for audience acquisition to balance with demand for and better efficiency to customers who are essentially paying extra nowadays to get that on records can go in. So, we are, frankly increasing across the board. For instance, we had significant outdoor campaign in Moscow recently. And we saw sizable increase in top of my brand awareness by sort of 8% -- or I'd say eight percentage points probably to 66%. According to our last measure, we also see traffic going up at around, between 20% and 30% as we increase more in digital channels. So it's across the boards and rather successful to see.

Luke Holbrook -- Morgan Stanley -- Analyst

Great. Thank you very much. That's very clear.

Operator

Thank you. And the next question comes from the line of Dmitry Vlasov from WOOD & Company. Your line is now open. Please go ahead.

Dmitry Vlasov -- WOOD & Company -- Analyst

Yes, thank you very much for the opportunity to ask question. I have two please. The first one, could you please breakdown the revenue growth for third quarter of 2021? Basically what came as a result of Zarplata and Skillaz? And what came from the organic growth? And what came from this labor market deficit so to speak?

The other question is on gig economy. If you could maybe comment on how big do you see the total addressable market opportunity here? Like what's the opportunity now? And how big could it become a once the transition from the grey market to the legal one will occur? Thank you.

Dmitry Sergienkov -- Deputy Chief Executive Officer

Hi, Dmitry. I will handle both. On the first one, if we try to decompose this, the growth in third quarter were 103% or in absolute terms RUB2.4 billion, yes, we're going to actually split up into low base effect inorganic growth and kind of more sustainable organic, right. So, in terms of low base effect, we -- it's obviously is arbitrary, right, plus It depends on what we do set as a base for last year. But we estimate that it's around 15% of 103%, which is equal to RUB350 million that is explained by low base. So, the percentage is obviously going down compared to Q2, for this reason.

Then more or less equal impact came right from inorganic growth, around 15% or RUB350 million, that's going to impact from Skillaz and Zarplata consolidation this year. And then so effectively, if you take out these two buckets, 30% and remaining 70%, or RUB1.7 billion, could be also broken into three major organic growth buckets, always I think having in consideration, first monetization; second, customer base expansion; and third the consumption growth. So, the first explains a circa 40% of that RUB1.7 billion, that's monetization of client base, of course, price differentiation and coupled with the fact of the new subscription model, the key contributors. I already said the paper contract products performing exceptionally well this year. Then 25%, of RUB1.7 billion relates to increased consumption of services. That's the impact of the market situation and labor force shortage and general law candidate activity in the market. I've discussed last time, so part of it probably diminished over time. So, it's called semi-sustainable because we see that for example, small and medium businesses, they consume twice bigger packages than usually do.

And the remaining 35% is the customer base expansion, predominantly small and medium businesses, predominantly regions. So that's driven by line adoption, our marketing investments, and B2B channels, our product adoption, platform adoption, et cetera. And that's the most encouraging number, because that's just helping us to grow the base, which we can monetize in future. So, generally if you compare Q2 the world base effect went down, the monetization effect went up, the other buckets remained more or less the same.

And the second question was on gig economy. Yes, I think we touched upon this, but happy to repeat. Generally, we see globally that the independence [Indecipherable] workforce constitutes up to 30% -- or not up to, on average 30% of labor force, quite stable measure, if you look at. So, in Russia, even including the unofficial grey market, that's only 15%. And, of course, the -- like 95% of that 15% are currently in the grey zone, because there were very limited incentives created and upon the legislation changed in some 18, we saw huge intake and registration of self-registered. So, we believe at the moment, they are in accordance with official statistics, around 2 million self-employed. And we expect actually this number to grow say 10x up to 20 million in the next three to five years. That's a huge emerging market for us. It's highly dynamic and not only the volumes that matter, but also the business model that could be applied matters. Because this if you compare with our traditional kind of permanent work, it's much easier in this market to CaRT [Phonetic] a transaction, because it's more frequent market, it's quite similar to what we see in mass equipment. And therefore, it's much easier CaRT a transaction, processing payroll, processing some admin works it's very sticky, potentially if you've had the -- if you're successful in boarding especially big enterprises, so that's our strategy together with YouDo.

We kind of officially declared this strategic partnership in June, then we try to kind of test this solution with -- the clients' interaction was exceptional. So, we decided to invest in YouDo as a minority partner at the stage, but of course it's a strategic type transaction for us. We were heading and securing all the necessary best to control in future, try and consolidate this business should it actually takeoff in the end. But we are very optimistic. And in the end this temporary market, contingent market could be bigger in monetary terms than the permanent sourcing market.

Dmitry Vlasov -- WOOD & Company -- Analyst

Thank you very much. Very clear.

Operator

Thank you. And no further questions that came through. I will now like to hand the conference back to your speaker, Dmitry Sergienkov. Your line is now open. Sir, you may go ahead.

Dmitry Sergienkov -- Deputy Chief Executive Officer

Yes, thank you operator. Just a few remarks. First of all, thanks for your participation. This is the last quarterly call for this year, time flies by quickly. Needless to say that it's been an outstanding quarter for us. In terms of financial results, it's probably the best quarter we've had since we went public. It's really nice to see how strategy execution are folding. We showcased how we can really continue to grow client volumes, while concurrently rolling out differentiated monetization. So, it speaks of the depths of the [Indecipherable] market, it speaks of the kind of pricing power arising out of our competitive position.

But what's even more encouraging, I think that kind of stem from the question we just received from Vya [Phonetic] on the -- on adjacent markets, in this challenging kind of candid world, we clearly see that the process of kind of rethinking and upgrading the role of HR function and HR funding within organizations. So, coupled with the recruitment directions, migrating online, so this creates the new quinto opportunities beyond our traditional market boundaries. This is already evidenced in our results in value-added service performance, including Skillaz dynamics in our experiments with DreamJobs and YouDo. So, we just want to stress that for us as the market leader in traditional markets, it's really important we have the best position to kind of catch this opportunity. It's an important strategic task that's going to lead the next way for which how things [Phonetic] will open in Russia. That's our ambition and the goal for years to come.

Thanks for your attention. Have a good week. Good bye.

Mikhail Zhukov -- Chief Executive Officer

Thanks, everyone.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Arman Arutyunian -- Investor Relations

Mikhail Zhukov -- Chief Executive Officer

Dmitry Sergienkov -- Deputy Chief Executive Officer

Grigorii Moiseev -- Chief Financial Officer

Vyacheslav Degtyarev -- Goldman Sachs -- Analyst

Ivan Kim -- Xtellus Capital -- Analyst

Luke Holbrook -- Morgan Stanley -- Analyst

Dmitry Vlasov -- WOOD & Company -- Analyst

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