DHI Group, Inc. — Q3 2015 Form 10-Q
Business and period: DHI operates specialized online recruiting and career services across technology and security clearance, finance, energy, healthcare, and hospitality. This unaudited report covers the quarter and nine months ended September 30, 2015; comparisons are with the corresponding 2014 periods.
Key financial results
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $65.1m | $67.6m | $194.7m | $194.8m |
| Operating income | $11.0m | $13.4m | $30.6m | $34.3m |
| Operating margin | 16.8% | 19.9% | 15.7% | 17.6% |
| Net income | $6.5m | $9.5m | $17.3m | $21.1m |
| Diluted EPS | $0.12 | $0.18 | $0.33 | $0.39 |
| Adjusted EBITDA | Not stated | Not stated | $55.8m | $64.3m |
For the nine months, operating cash flow was $49.4m (versus $47.6m), capital expenditures were $6.7m, and company-defined free cash flow was $42.7m (versus $40.9m). Cash and cash equivalents were $33.9m at September 30, 2015, including approximately $25.6m held outside the U.S. and described as indefinitely reinvested.
Total debt was $101.6m, comprising $45.6m of term loans and $56.0m of revolver borrowings; $144.0m remained available under the revolving facility. The company reported compliance with its financial covenants. Total liabilities were $234.5m and stockholders’ equity was $173.8m. Deferred revenue was approximately $83.1m, including $1.2m classified as held for sale.
Changes and operating trends
- Q3 revenue fell 3.7% year over year; nine-month revenue was nearly flat. Operating income and net income declined in both comparisons, with lower earnings reflecting weaker energy and Slashdot Media results, higher product-development spending and other personnel costs, and, for nine months, a higher effective tax rate.
- Energy revenue declined 41.1% in Q3 and 25.2% for nine months, which management attributed to difficult energy-market conditions and reduced demand for energy professionals amid lower oil prices. Q3 Energy segment operating income was a loss of $0.7m.
- Tech & Clearance, Healthcare, and Hospitality grew in the nine-month period, while Finance revenue declined slightly. Foreign exchange reduced Finance revenue by approximately $2.1m for nine months; management said it would have increased about $1.4m at constant currency.
- The company initiated a sale of Slashdot Media, classifying its assets ($4.7m) and liabilities ($2.4m) as held for sale. No impairment was recorded. The business generated $3.5m of Q3 revenue and $11.2m for nine months, down from $4.8m and $13.5m, respectively, in 2014.
- During the first nine months, DHI repurchased $29.6m of stock and made $8.9m of net debt repayments. At September 30, approximately $19.3m remained under the then-current repurchase plan, scheduled to expire no later than December 2015.
Outlook, risks, and contingencies
Management gave no specific revenue or earnings guidance in the provided filing text. It stated that existing cash, operating cash generation, and available borrowing capacity should cover anticipated requirements for at least the next 12 months, while noting that weaker demand, lender availability, or inability to refinance could affect liquidity. Management also identified recruitment-market cyclicality, competition, customer and candidate engagement, and the energy downturn as business risks.
Approximately 28% of nine-month revenue was earned outside the U.S.; the company did not hedge currency risk. A 1% decline in the pound sterling against the U.S. dollar would have reduced 2015 revenue by approximately $264,000. A 1% increase in interest rates was estimated to add approximately $254,000 to interest expense for the remainder of 2015. The company reported no material pending legal proceedings and said ordinary-course claims were not expected to materially affect its financial condition, operations, or liquidity. It also reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the energy segment’s revenue and operating performance stabilize, given continued sector weakness.
- Progress, timing, and final terms of the planned Slashdot Media sale and any effect on reported results or cash flows.
- Whether growth in Tech & Clearance, Healthcare, and Hospitality can offset weakness in Energy and other businesses.
- Debt repayment, covenant headroom, borrowing availability, and the portion of cash held outside the U.S.
- The impact of share repurchases, stock-based compensation, foreign exchange, and the higher 2015 effective tax rate on per-share results.