DHI Group, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. DHI operates U.S. technology-focused career marketplaces through Dice and ClearanceJobs and reports one segment.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $37.4 million | $38.5 million | $114.6 million | $109.9 million |
| Operating income | $2.2 million | $1.2 million | $2.8 million | $2.8 million |
| Operating margin | 6.0% | 3.2% | 2.4% | 2.5% |
| Net income (loss) | $1.0 million | $(0.9) million | $1.3 million | $1.8 million |
| Diluted EPS | $0.02 | $(0.02) | $0.03 | $0.04 |
| Adjusted EBITDA and margin | Not provided here | Not provided here | $26.2 million; 23% | $22.9 million; 21% |
- Q3 revenue declined 3%: Dice revenue fell 9% to $24.8 million, while ClearanceJobs rose 13% to $12.7 million. For the nine months, revenue grew 4%; Dice declined 1% and ClearanceJobs increased 18%.
- Q3 operating income improved despite lower revenue, mainly because operating costs were lower. Nine-month operating income was nearly unchanged as revenue growth was offset by higher expenses.
- Nine-month operating cash flow was $13.7 million, down from $28.7 million. Investing used $10.0 million, including $15.0 million in fixed-asset purchases, partly offset by proceeds from an investment sale. Financing used $3.0 million.
- Cash was $3.7 million at September 30, 2023. Debt was $40.0 million, up from $30.0 million at year-end 2022; debt less cash was approximately $36.3 million. The $100 million revolver had $60 million available, subject to borrowing limits. The variable borrowing rate was 7.67%; the facility matures in June 2027. The company reported compliance with financial covenants.
- Current assets were $27.1 million and current liabilities $65.1 million. Current liabilities include $48.3 million of deferred revenue from customer billings for services to be delivered.
Material changes and management commentary
- Management attributed weaker Dice results to macroeconomic conditions, lower new business activity, and reduced activity in non-annual products. Dice recruitment-package customers fell 10% year over year to 5,752, while average annual revenue per customer increased 4%.
- ClearanceJobs benefited from sustained demand for security-cleared professionals and product releases. Its recruitment-package customers increased 1% to 2,054, and average annual revenue per customer rose 11%.
- Backlog was $108.4 million, up 5% year over year but down 8% from December 31, 2022. Management attributed the annual decline mainly to softer demand and the year-over-year increase to multi-year contracts.
- A May 2023 restructuring reduced the then-current workforce by approximately 10%. Nine-month charges were $2.4 million, including severance and accelerated stock compensation; Q3 charges were $0.3 million.
- DHI sold part of its eFinancialCareers interest, reducing ownership from 40% to 10%, received $4.9 million, and recorded a $0.6 million gain. It also recorded a $0.3 million impairment on another investment after that investee’s financial position deteriorated.
- The CFO resigned effective September 1; CEO Art Zeile served as interim CFO. A permanent CFO was appointed in October, with an effective date of December 4, 2023.
Outlook, risks and contingencies
- Management said cash, operating cash flow, and available revolver capacity should meet anticipated requirements for at least the next 12 months. This outlook depends in part on demand, collections, lender availability, and continued covenant compliance.
- 2023 capital expenditures were expected to be approximately $21 million to $23 million, funded with operating cash flow. The filing provides no specific revenue or earnings guidance.
- Risks highlighted include recruiting-market cyclicality and weaker hiring demand, customer retention and engagement, competition, product and technology execution, cybersecurity and data privacy, variable interest rates, debt covenants, and potential impairment of goodwill or the Dice brand intangible. Goodwill was $128.1 million and the indefinite-lived Dice brand asset was $23.8 million; no impairment was recorded in the periods presented.
- Unrecognized tax benefits were approximately $1.2 million; the company said up to $0.2 million might be recognized within 12 months. Management stated that ordinary-course litigation and claims were not expected to materially affect financial condition, operations, or liquidity. No material pending legal proceedings were reported.
- Disclosure controls were deemed effective, and no material change in internal controls over financial reporting was reported for the quarter.
Most important facts for investors to verify
- Whether Dice customer losses and weaker new business activity stabilize, and whether ClearanceJobs growth continues.
- Whether backlog converts to recognized revenue and operating cash flow, particularly given the sharp year-over-year decline in nine-month cash from operations.
- Capital spending against the $21 million to $23 million 2023 estimate and its effect on cash and borrowing needs.
- Debt cost, facility availability, and covenant headroom as rates and borrowings change.
- Whether the restructuring produces sustained cost savings, and whether weaker market conditions or investment performance prompt further charges or asset impairments.
- The CFO transition and any subsequent changes to financial outlook, capital allocation, or risk disclosures.