DHI Group, Inc. — Q2 2015 Form 10-Q
Business and period: The company operates specialized recruiting and professional websites across technology and security clearance, finance, energy, healthcare, and hospitality. This unaudited filing covers the quarter and six months ended June 30, 2015; comparisons are with the corresponding 2014 periods.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $65.8M | $66.5M | $129.6M | $127.2M |
| Operating income | $10.5M | $13.0M | $19.7M | $20.9M |
| Net income | $5.7M | $7.2M | $10.8M | $11.6M |
| Diluted EPS | $0.11 | $0.13 | $0.20 | $0.21 |
| Operating margin | 16.0% | 19.5% | 15.2% | 16.4% |
- Q2 revenue fell 1.1%; six-month revenue grew 1.8%. Operating income declined 19.0% in Q2 and 5.7% for the half year. Cost growth and segment mix contributed to weaker profitability.
- For the six months, operating cash flow was $37.0M, versus $33.4M; capital expenditures were $4.9M, yielding company-defined free cash flow of $32.1M, versus $28.4M. Adjusted EBITDA, a non-GAAP measure, was $36.7M versus $41.8M.
- Cash and equivalents were $32.7M at June 30, up from $26.8M at year-end. Current assets were $85.3M and current liabilities $118.2M. Deferred revenue was $86.4M on the balance sheet, plus $1.7M classified as held for sale.
- Debt totaled $104.3M: $46.3M term loan and $58.0M revolver. The company had $142.0M of available revolver capacity and reported compliance with financial covenants. The facilities mature in October 2018; the stated borrowing rate was 2.19%.
- Stockholders’ equity was $176.9M. The company repurchased 1.44M shares in Q2 for $12.2M at an average $8.48 per share; $28.6M remained under the current authorization.
Material changes and segment trends
- Tech & Clearance: Q2 revenue rose 4.4% to $34.7M; six-month revenue rose 4.5% to $68.0M. Dice recruitment-package customers declined from 8,000 to 7,750 year over year, while average monthly revenue per customer increased about 5%.
- Energy: Revenue declined 32.5% in Q2 and 16.4% for the half year, primarily because of weak energy-sector demand and lower Rigzone performance amid falling oil prices. Segment operating results were losses of $0.4M in Q2 and $0.6M for the half year.
- Healthcare and Hospitality: Q2 revenue increased 18.0% and 24.8%, respectively; six-month revenue rose 13.9% and 30.3%. The filing attributes growth largely to greater customer usage.
- Finance: Reported revenue fell 3.3% in Q2 and 2.9% for the half year, but foreign currency reduced Q2 revenue by about $0.7M and first-half revenue by about $1.4M. In functional currency, regional revenue increased.
- Corporate & Other: Revenue declined 21.6% in Q2 and 14.3% for the half year, reflecting declines at Slashdot Media. Q2 general and administrative expense included approximately $0.6M of bad-debt expense tied to one Slashdot customer.
Outlook, commentary, and risks
- No specific earnings or revenue guidance is provided. Management said cash, operating cash generation, and available borrowing capacity should cover anticipated requirements for at least the next 12 months, while noting risks around demand, lender availability, and refinancing.
- The company began a process to sell Slashdot Media, stating the business no longer fits its strategy. It was classified as held for sale; no impairment was recorded. Its revenue was $3.9M in Q2 and $7.7M for the half year, down from $4.7M and $8.8M. Six-month EBITDA was $0.9M versus $2.6M.
- Key risks include continued weakness in energy recruiting, economic and recruitment cyclicality, competition and ability to retain customers and attract qualified professionals, foreign-exchange movements, and variable-rate debt. A 1% rate increase was estimated to add about $0.5M of interest expense in the remainder of 2015; the company does not hedge currency risk.
- The six-month effective tax rate increased to 40.3% from 38.2%, reflecting state tax examination and prior-year foreign-return adjustments related to the OnTargetjobs acquisition, as well as state-law changes. Management said up to $0.8M of unrecognized tax benefits could be recognized within 12 months.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The company said it was not party to any material pending legal proceedings and reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether energy-sector weakness persists and how it affects Rigzone revenue, profitability, and the carrying value of the Energy reporting unit.
- Progress, timing, and financial impact of the proposed Slashdot Media sale, including treatment of held-for-sale assets and liabilities.
- Whether customer-count declines at Dice continue and whether higher revenue per customer can offset them.
- Debt repayment capacity, covenant headroom, interest-rate exposure, and availability of the revolving facility.
- Underlying cash generation and earnings trends, including the effects of repurchases, stock-based compensation, foreign exchange, and the elevated tax rate.