DHI Group, Inc. (then Dice Holdings, Inc.) — Q2 2011 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2011; unaudited. The company operated specialized career websites across Tech & Clearance, Finance, and Energy.
Financial performance and liquidity
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $44.9 million | $29.9 million | $85.0 million | $56.7 million |
| Operating income | $12.5 million | $6.5 million | $23.2 million | $12.5 million |
| Net income | $7.7 million | $3.7 million | $14.3 million | $7.0 million |
| Diluted EPS | $0.11 | $0.05 | $0.20 | $0.10 |
| Operating margin | 27.8% | 21.6% | 27.4% | 22.1% |
- Q2 revenue grew 50.0% year over year; operating income rose 93.1%. Six-month revenue increased 49.7%, and operating income increased 85.5%.
- For the six months, operating cash flow was $38.2 million, versus $22.2 million a year earlier. Capital expenditures were $3.5 million, implying operating cash flow less capital expenditures of approximately $34.7 million.
- Cash and cash equivalents were $66.3 million at June 30, with $0.6 million of marketable securities. Total debt was $17.0 million, down from $41.0 million at year-end 2010; the $70 million revolver was undrawn. The company reported compliance with credit covenants.
- Current assets were $87.3 million and current liabilities $91.5 million. Deferred revenue was $60.0 million, up from $49.2 million at year-end.
Material changes and management commentary
- Q2 segment revenue: Tech & Clearance $28.3 million (+32.4%); Finance $11.5 million (+48.1%); Energy $4.2 million, versus $0.2 million. Energy growth primarily reflects the 2010 Rigzone acquisition and a full-quarter contribution from WorldwideWorker. For the six months, Energy revenue was $7.3 million.
- Management attributed growth to improved recruitment activity, increased customer usage, and higher revenue per customer. Dice.com and ClearanceJobs had approximately 8,050 recruitment-package customers at June 30, 2011, compared with approximately 6,750 a year earlier; average monthly revenue per customer rose about 12% in Q2 and 11% for the six-month period.
- Operating expenses increased, including product development (+65.7% in Q2) and sales and marketing (+40.6%). Management said it expected to increase marketing and product-development spending during the rest of 2011 and expected higher capital expenditures in future quarters.
- Energy reported operating losses of $1.3 million in Q2 and $2.7 million for the six months, primarily reflecting acquired-intangible amortization and increased estimated acquisition earnouts. The company recorded a $2.0 million six-month expense for changes in acquisition-related contingencies.
- Management believed available cash, operating cash generation, and borrowing capacity would meet anticipated cash needs for at least 12 months. This is not quantified earnings guidance; the filing provides no specific revenue or EPS forecast.
Risks, contingencies, and unusual items
- Acquisition-related contingent consideration was $13.1 million at June 30, payable subject to operating and financial targets. Rigzone’s agreement allowed up to $16 million of additional consideration based on revenue targets through June 30, 2011, with payment expected around October 2011.
- Goodwill and intangible-asset valuations rely on estimates and forecasts. No impairment was indicated, but WorldwideWorker’s fair value exceeded carrying value by only approximately 7%; management warned weaker future results could lead to impairment.
- The business is exposed to hiring-market cyclicality, competition, customer retention and recruitment activity, and its ability to attract qualified professionals. About 24% of six-month revenue was earned outside the U.S.; the company did not hedge currency risk. A 1% decline in pound sterling versus the U.S. dollar would have reduced six-month revenue by approximately $190,000.
- Debt bears variable interest; a 1% rate increase was estimated to add approximately $120,000 of interest expense for the remainder of 2011 on then-current borrowings. The company also had $4.5 million of unrecognized tax benefits and $9.992 million of future operating-lease payments.
- The filing reported no material legal proceedings and no material changes to previously disclosed risk factors. The company reported effective disclosure controls and no material change in internal control over financial reporting.
- A February secondary offering included company-issued shares; the company received $11.9 million and used the proceeds to acquire treasury shares, resulting in no net financing cash-flow impact. A later sale by existing holders generated no proceeds for the company.
Investor verification points
- Separate underlying growth from acquisition-related comparisons, particularly in Energy, and track segment profitability.
- Monitor recruitment-package customer counts, revenue per customer, deferred revenue, and customer retention as hiring conditions change.
- Verify the final Rigzone and other acquisition-contingency payments against achieved targets, and assess goodwill headroom, especially at WorldwideWorker.
- Assess whether planned marketing, product-development, and capital-spending increases sustain growth without eroding margins or cash generation.
- Track debt repayment and covenant capacity, variable-rate exposure, foreign-exchange movements, and resolution of tax contingencies.