FREELANCER LIMITED — Interim / Quarterly Report 2014

Aug 10, 2014

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Freelancer Limited Half Year Results Presentation 2014

11 August 2014

Matt Barrie Chief Executive

Important notice and disclaimer

This presentation has been prepared by Freelancer Limited (ACN 141 959 042) ( Freelancer or the Company ). The information contained in this presentation is current at the date of this presentation. The information is a summary overview of the current activities of the Company and does not purport to be all inclusive or to contain all the information that a prospective investor may require in evaluating a possible investment. This presentation is for general information purposes and is not intended to be and does not constitute a prospectus, product disclosure statement, pathfinder document or other disclosure document for the purposes of the Corporations Act 2001 (Cth) ( Corporations Act ) and has not been, and is not required to be, lodged with the Australian Securities & Investments Commission. It is to be read in conjunction with the Company’s disclosures lodged with the Australian Securities Exchange, including the Company’s half year results lodged with the Australian Securities Exchange on 11 August 2014.

The material contained in this presentation is not, and should not be considered as, financial product or investment advice. This presentation is not (and nothing in it should be construed as) an offer, invitation, solicitation or recommendation with respect to the subscription for, purchase or sale of any security in any jurisdiction, and neither this document nor anything in it shall form the basis of any contract or commitment. This presentation is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor which need to be considered, with or without professional advice, when deciding whether or not an investment is appropriate.

This presentation contains information as to past performance of the Company. Such information is given for illustrative purposes only, and is not – and should not be relied upon as – an indication of future performance of the Company. The historical information in this presentation is, or is based upon, inform ation contained in previous announcements made by the Company to the market.

Forward looking statements

This document contains certain "forward-looking statements". The words "anticipate", "believe", "expect", "project", "forecast", "estimate", “outlook”, “upside”, "likely", "intend", "should", "could", "may", "target", "plan" and other similar expressions are intended to identify forward-looking statements. Indications of, and guidance on, future earnings and financial position and performance, including Freelancer’s FY14 outlook, are also forward-looking statements, as are statements regarding Freelancer’s plans and strategies and the development of the market.

Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of Freelancer, which may cause actual results to differ materially from those expressed or implied in such statements.

Freelancer cannot give any assurance or guarantee that the assumptions upon which management based its forward-looking statements will prove to be correct or exhaustive beyond the date of its making, or that Freelancer 's business and operations will not be affected by other factors not currently foreseeable by management or beyond its control. Such forward-looking statements only speak as at the date of this announcement and Freelancer assumes no obligation to update such information. The release, publication or distribution of this presentation in jurisdictions outside Australia may be restricted by law. Any failure to comply with such restrictions may constitute a violation of applicable securities laws.

Non-IFRS information

This presentation includes certain financial measures that are not recognised under Australian Accounting Standards ( AAS ) or International Financial Reporting Standards ( IFRS ). Such non-IFRS financial measures do not have a standardised meaning prescribed by AAS or IFRS and may not be comparable to similarly titled measures presented by other entities, and should not be construed as an alternative to other financial measures determined in accordance with AAS or IFRS. The information is presented to assist in making appropriate comparisons with prior periods and to assess the operating performance of the business. Freelancer uses these measures to assess the performance of the business and believes that information is useful to investors. Gross Payment Volume, EBITDA, and EBIT have not been audited or reviewed. Recipients are cautioned not to place undue reliance on any non-IFRS financial measures included in this presentation.

All references to dollars are to Australian currency unless otherwise stated.

To the maximum extent permitted by law, Freelancer makes no representation or warranty (express or implied) as to the accuracy, reliability or completeness of any information contained in this document. To the maximum extent permitted by law, Freelancer shall have no liability (including liability to any person by reason of negligence or negligent misrepresentation) for any statements, opinions or information (express or implied), arising out of, contained in or derived from, or for any omissions from this document, except liability under statute that cannot be excluded.

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Key financial highlights 1H FY14

Freelancer continues to deliver strong revenue growth

• Net Revenue of $11.9m for 1H FY14 (up 41% on pcp)

• Gross Payment Volume (GPV)[1] of $49.5m (up 30% on pcp)

• Continued improvement in gross margin to 88.3% (up from 87.6% in FY13)

• Continued improvement in Freelancer take rate[2] to 24.0% (up from 22.2% FY13)

• Operating NPAT[3] of $(0.6)m and operating EBITDA[3] of $(0.8)m (excl. non-cash share based payments expenses)

• Investment in office and headcount expansion post IPO

• Gross Payment Volume (GPV) is calculated as the total payments to Freelancer users for products and services transacted through the Freelancer website plus total Freelancer revenue.

• Take rate is calculated as Net Revenue divided by Gross Payment Volume.

• Exclusive of non-cash share based payments expense of $125k.

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Key marketplace highlights 1H FY14

Freelancer continues to position itself as the Amazon.com of the industry

● Widest range at the lowest cost

• 2H‘13 lowered minimum project size to $10 as continuous commitment to strategy

• Average project size down A$194 FY’13 to ~A$167 1H’14 (down 14%)[1]

• Better value for employers and better for marketplace liquidity, investing for the long term

• Added 2.8 million users, up 138% on 1H’13

• 1.8m organically, up 54% on pcp

• 1.0m acquired incl. Warrior Forum, yet to be integrated / cross promoted into Freelancer

• Added 0.75 million projects/contest listings, up 30% on pcp

• accelerated from 21% yoy FY12-13

• Main focus continues to be conversion optimisation & marketplace efficiency

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1. Based on AUD/USD exchange rate of 0.94.

4

Key operational highlights 1H FY14

Freelancer expands global footprint to position for continued growth

• Expanded Sydney HQ (733m[2] to 1,800m[2] ) (Aug ‘14)

• Expanded Manila Support Office (760m[2] to 2,500m[2] )

• Expansion of international footprint

• Opened Vancouver & London offices

• Increased investment in headcount

• FTEs up ~18% from Dec ‘13

• Key new hires include:

• Regional Director of Engineering (Manila) (ex Bodog)

• Director of Product & Engineering Operations (ex Expedia)

• Product Manager (Mobile) & Mobile Team (ex Domain.com.au)

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Acquisitions 1H FY14

Freelancer continues to consolidate the industry

• Acquired leading pure play marketplace in Poland, zlecenia.przez.net

• Acquired virtual content marketplace, fantero.com

• Acquired Warrior Forum , the world’s largest Internet marketing marketplace & community since 1997

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Product Improvements 1H FY14

Continuous delivery from the Freelancer product group

• Launched Freelancer Messenger App for Android & Android Wear

• Employers and freelancers can stay in touch away from their desk

• Speeding up communications by allowing employers and freelancers to chat hands free

• Launched Freelancer Desktop App for Windows, Linux

• Builds trust & helps freelancers accurately capture hours for billing

• Launched Mobile Website

• Targeted experience for growing number of mobile users

• Introduced Intro memberships (99c / month)

• More accessible for new freelancers in the developing world

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7

Marketplace growth

Exponential growth in registered users, projects and contests posted

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Total registered users [1] Total projects & contests posted [1]
9,000,000 5,000,000
(excludes Warrior Forum & Fantero)
8,000,000
4,000,000
7,000,000
As at 30 June 2014
As at 30 June 2014
6,000,000 12.4 million 6.1 million
(incl. Warrior Forum & Fantero)
3,000,000
5,000,000
4,000,000
2,000,000
3,000,000
2,000,000
1,000,000
1,000,000
- -
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
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1. Number of user accounts, and projects/contests posted in the Freelancer marketplace as at 30 June 2014. User, project and contest data includes all users and projects from acquired marketplaces including, but not limited to GetAFreelancer, EUFreelance, Scriptlance, LimeExchange, vWorker/RentACoder and zlecenia.przez.net. Prior to FY09, all data is from acquired marketplaces.

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Revenue growth

1H FY14 net revenues of $11.9m, up +41% on prior corresponding period

Net Revenue (A$m) and Gross Margin (%)

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11.9
12.0
Net Revenue
Full year gross margin(1H FY14)10.0 +41%
8.5
8.0 86.7% 87.4% 87.6% 88.3%
82.6%
+96%
6.0
4.3
4.0
3.1
+38%
2.1
2.0 +50%
0.0
1H FY10 1H FY11 1H FY12 1H FY13 1H FY14
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• Continued strong growth in revenue to $11.9m for first half of FY14, up +41%

• Continued improvement in gross margin, 88.3% in 1H FY14 up from 87.6% in FY13

• Key revenue growth drivers

• GPV growth – user, project & contest acquisition and conversion rate improvements

• Product development & increased take up of value-added services

• Increased take-up and optimisation of memberships

Revenue (A$m)	2.1	3.1	4.3	8.5	11.9
Growth on pcp	-	50%	38%	96%	41%
FY gross margin (1H FY14)	82.6%	86.7%	87.4%	87.6%	88.3%

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Gross payment volume

Gross Payment Volume[1] (GPV) growth of +30% on pcp and continued improvement in take rate[2] in 1H FY14

Gross Payment Volume[1] (A$m) and Take Rate[2] (%)

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49.5
50.0
GPV +30% 30.0%
Take rate 40.0 38.1
24.0% 25.0%
22.2%
30.0 18.6% 18.9% 20.0%
+67%
15.6%
22.8
15.0%
20.0 16.8
13.3 10.0%
+35%
10.0
+26% 5.0%
0.0 0.0%
1H FY10 1H FY11 1H FY12 1H FY13 1H FY14
GPV (A$m) 13.3 16.8 22.8 38.1 49.5
Growth on pcp - 26% 35% 67% 30%
Take rate [2] 15.6% 18.6% 18.9% 22.2% 24.0%
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• GPV of $49.5m for first half of FY14, up +30% on pcp

• Continued take rate improvement to 24.0%

• Increased take up of value-added services such as memberships and project upgrades, and other noncommission based revenue streams

● Key GPV growth drivers

• User, project & contest acquisition

• Conversion rate improvements

• Gross Payment Volume (GPV) is calculated as the total payments to Freelancer users for products and services transacted through the Freelancer website plus total Freelancer Revenue. Based on Freelancer’s unaudited management accounts which have not been subject to an auditors review.

• Take rate is calculated as Net Revenue divided by Gross Payment Volume.

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Summary profit & loss statement

Continued focus on re-investment in product development, user experience, user/project acquisition and customer service

(A$m)	1H FY13	1H FY14	Change
Half-year to 30 Jun	Actual	Actual	(%)
Net Revenue	8.5	11.9	41%	●Continued strong revenue and gross profit growth,
Gross Profit	7.5	10.5	41%		up 41% on pcp
margin (%)	88.5%1	88.3%	n/m1	●Continued gross margin improvement
Employee expenses	(4.2)	(6.7)	58%		(up from 87.6% in FY13)1
Administrative expenses	(1.8)	(3.7)	102%	●Continued investment in talent: product
Occupancy costs	(0.3)	(0.8)	150%		development, engineering & customer service
FX gains / (losses)	(0.5)	(0.1)	(74%)		– Approx. 350 FTEs at period end
Share based payments expense	-	(0.1)	n/m		(up ~18% on Dec ‘13)
EBITDA	0.6	(0.9)	n/m	●Increase in occupancy costs relate to expanded
EBIT	0.5	(1.1)	n/m		premises in Manila and new Vancouver and London
NPAT	0.5	(0.7)	n/m		offices
				●FX gains/(losses) relate to unrealised changes in
Excluding share based payments	expenses2				AUD value of cash and user obligations
EBITDA	0.6	(0.8)	n/m
EBIT	0.5	(0.9)	n/m
NPAT	0.5	(0.6)	n/m	1.	Note that the Company implemented more conservative provisioning policies for accruals recognised in cost of sales from 2H FY13. As such the Company’s gross margin for FY13 is

1. Note that the Company implemented more conservative provisioning policies for accruals recognised in cost of sales from 2H FY13. As such the Company’s gross margin for FY13 is more comparable to 1H FY14 gross margin.

2. Exclusive of non-cash share based payments expense of $125k in 1H FY14.

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Cash flow profile

Re-investing for growth

Cash Balance/Flows (A$m)

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1.4
24.4
1.7 3.8
1.0
0.6
0.6 19.7
1.9
10.2
Int'l Cash 6.0
AU Cash
US Cash
12.5
11.8
FY13 Operating Acquisitions FX Capex Other 1H FY14
Period End cash flow (incl. movements (incl. office (incl. Period End
intangible buildout) security
assets) deposits)
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• Positive operating cash flow of $1.4m

• Acquisitions included Warrior Forum, Fantero, zlecenia.przez.net and other intangible assets

• FX movements relate to strengthening AUD predominantly against USD, EUR, GBP

• Capex increase on pcp predominately driven by headcount growth and fit-out of new premises

• Other cash flow items incl. security deposits relating to new premises

• Total cash at period end of $19.7m (NTA of $3.7m)

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Summary balance sheet

Strong balance sheet

(A$m)	FY13	1H FY14	Change
31 Dec FYE	Actual	Actual	(%)
Cash and cash equivalents	24.4	19.7	(19%)
Trade and other receivables	2.3	2.5	9%
Other current assets Plant and equipment	0.4 0.6	1.2 1.0	189% 86%
Intangibles	8.9	12.8	44%
Deferred tax assets	0.8	1.2	44%
Total assets	37.4	38.4	3%
Trade and other payables	18.3	19.8	8%
Other liabilities	0.7	0.9	38%
Total liabilities	19.0	20.7	9%
Net assets	18.4	17.7	(4%)
Contributed equity	17.6	17.5	(0%)
Reserves	(0.2)	(0.1)	(53%)
Retained earnings	1.0	0.3	(71%)
Total equity	18.4	17.7	(4%)

• Total cash at period end of $19.7m, no net debt

• Trade and other receivables inclusive of receivables from various payment gateways

• Increase in intangibles predominantly relates to goodwill recognised on the acquisition of Warrior Forum

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FY14 outlook

“Every job, every country, every language, every currency, at any time”

• Operational and product development outlook for FY14

• Execution is key

• Continued focus on platform scalability

• Product & user experience to drive engagement

• Build out a world class team

• Increased focus on acquisition channels

• Expand global presence

• Launch mobile offerings, Android Messenger live

• Continually assess opportunities

“160 million jobs, or about 11% of the projected 1.46 billion services jobs worldwide, could in theory be carried out remotely, barring any constraints in supply”

McKinsey Global Institute[1]

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1. McKinsey Global Institute, The Emerging Global Labor Market 2005, Part I: The Demand for Offshore Talent in Services.

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HOW BIG IS THE MARKET?

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Estimated demand for Web Design services

Freelancer’s global web design revenue opportunity estimated as $1.8 billion per annum ($8.2b GPV)

• Web design in the US alone is US$20 billion industry (2013)[1]

• Wages constitutes US$11.6 billion of this

• 50% of software engineering jobs can be outsourced at 30% of US wages[2]

• US$1.74 billion in wages outsourced @ 22.2% take rate = ~A$410 million revenue opportunity for Freelancer in the US (Total Available Market)[4]

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• There are 28 million small businesses in the US, but at least 96 million more in other mid-high income OECD countries[3]

• From this we estimate the global opportunity is (96+28)/28 = 4.4x larger than the US market

• Freelancer’s estimated global web design revenue opportunity at ~$1.8 billion ($8.2b GPV)

• This is as a replacement of existing business only and there is potential upside from opening up of new demand from lower cost labour services globally e.g. for the first time, a café can get a website for $100

Comparison of hourly labour cost , index (US = 100)[2]

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30% of US labour cost
Potential
wage
inflation
India China Mexico Poland Czech Canada
Republic
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1. McKinsey Global Institute, “The Emerging Global Labor Market: Part III: How Supply and Demand for Offshore Talent Meet” (June, 2005).

2. Based on 28m SMEs in the US, 96m MSMEs outside the US in mid-high income OECD countries. 4. Based on AUD/USD exchange rate of 0.94.

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1. IBISWorld, “Web Design Services in the US” (August, 2013).

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Estimated demand from Small Businesses

Global small business revenue opportunity estimated as $16.7 billion per annum (388 million projects, $75.3b GPV)

• There are about 28 million small businesses in the US

• 22 million of these are informal non-employers (yet generate >$1 trillion per annum in revenue)[1]

• US job posters posted on average 3.13 projects in 2013[2]

• Average project size in 2013 was $194, 0 generating revenue of $43 to Freelancer (22.2% take rate)[2]

• Implies $3.8 billion TAM ($17.0b GPV, 88m projects) from US SMEs

• But there are 420 – 510 million micro, small and medium enterprises (MSMEs) globally[3]

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420-510 million
MSMEs
18-22 globally [3]
0
Central Asia and
Eastern Europe
19-23
0 170-205
56-68
Middle East
and North Africa
High-income
OECD countries
75-91 0
East
47-57 36-44 Asia
0 Latin 0 Sub-Saharan 0 South
America Africa Asia
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• 96 million are formal employer MSMEs outside the US in mid-high income nations[4]

• Additional $12.8 billion TAM ($57.7b GPV, 301m projects)

 Estimated global TAM from MSME market of ~$16.7 billion ($75.3 billion GPV, 388m projects)

• This excludes another 100m+ informal (unregistered) MSMEs in high income nations globally including non-employer firms, sole proprietors and partnerships which could add another $13.5b to FLN revenue opportunity

• Based on Freelancer internal statistics for FY13. Average paid value of completed project was A$194 in 2013 (based on AUD/USD exchange rate of 0.94 and including acquired marketplace data).

• McKinsey Global Institute, “Two trillion and counting: Assessing the credit gap for micro, small, and medium-size enterprises in the developing world” (October, 2010).

• World Bank Statistics, International Finance Corporation. Excludes informal MSMEs including non-employer firms, sole proprietors and unincorporated partnerships.

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1. US Government, Small Business Administration Office of Advocacy.

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Estimated demand from Consumers

Engaged active users on major product marketplaces are low hanging fruit for online services. Major product marketplaces as a proxy of consumer demand indicates TAM of $17.3b (400m projects, $77.7b GPV)

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|||||||||
|---|---|---|---|---|---|---|---|
|GPV of|
|~|Taking|
|200 million|active|~128 million active|~$77.7b|
|128m|
|3.13 projects / user|
|consumers on average|consumer|
|buyers as|Global Total|
|$194 / project|
|on eBay, Amazon and|buyers on eBay|
|consumer|22.2% take rate|Available Market (TAM)|
|Alibaba|(sellers are SMEs)|
|proxy|~$17.3b (400m projects)|
|2013|Revenue|US$16.0 billion|US$74.5 billion|~US$8 billion|A$18.8 million|
|2013 GMV/GPV|US$76.5|billion|[1]|~US$125 billion|[2]|~US$248 billion|A$84.4 million|
|US$212 billion ECV|
|(with Paypal)|
|2013 Users|128m|active buyers|237m|active buyers|231m|active buyers|9.7 million|
|(233m users)|total registered|
|users|
|143 million active|20 million Amazon|Avg. buyers order|
|PayPal accounts|Prime|49 times/year|
|Geography|Global|Global|Predominately|Global|
|China|

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Source: Company reports.

1. Gross Merchandise Value (GMV) excluding vehicles only.

2. Based on analyst estimates.

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Estimated supply of professional labour in the developing world

370 million people, or 10% of the 3.7 billion working age population in the developing world have a tertiary qualification

• 2010 global working age population: 3.7 billion, labour force: 2.9 billion[1]

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• 2030 predicted global labour force: 3.5 billion[1]

• Of the 3.7 billion working age in the developing world in 2010:

• 1.7 billion (46%) have a secondary education

• 370 million (10%) have a tertiary education

Educational attainment (2010)

• % working age population; million people[1]

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• There are 220 million people with a tertiary degree between India, China, Brazil, Philippines, Malaysia, Indonesia, Egypt, Sri Lanka and Nigeria

• In the Philippines, tertiary education rose from 9% to 22% (13m) 1980-2010

• Brazil, China, India @ 7 to 9%, yet produce ~5m STEM grads per annum[3]

• ~5 billion people to join the Internet over next decade that earn <$10/day

• They have very little assets however are educated and can sell their services

• Freelancer.com is the first stop on the Internet for these people to raise their wages from $10/day to $10/hour+

• McKinsey Global Institute: The World at Work: Jobs, Pay and Skills for 3.5 Billion People (June 2012)

• McKinsey Global Institute, The Emerging Global Labor Market 2005, Part I: The Demand for Offshore Talent in Services 3. Accenture Institute for High Performance: Where will all the STEM talent come from? (May 2012)

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Total Available Market

$16b+ TAM

370,000,000 workers

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20

• Freelancer’s $16b+ opportunity is driven by: • the significant wage differential between the developed & developing world;

• • opening up of new demand as labour services pricing drops; and

• • increasing labour supply driven by Internet penetration & education

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