DHI Group, Inc. (then Dice Holdings, Inc.) — Q3 2011 Form 10-Q
Business context and reporting period
The filing covers the quarter and nine months ended September 30, 2011. The company operated specialized career websites in technology and security-cleared employment, finance, and energy; its reportable segments were Tech & Clearance, Finance, and Energy. Results are unaudited. The company cautions that nine-month results are not necessarily indicative of full-year results.
Financial performance
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $46.8 million | $34.4 million | $131.8 million | $91.1 million |
| Operating income | $15.0 million | $8.8 million | $38.2 million | $21.3 million |
| Net income | $9.3 million | $6.2 million | $23.6 million | $13.2 million |
| Diluted EPS | $0.13 | $0.09 | $0.34 | $0.20 |
| Operating cash flow | Not separately reported for the quarter | $55.5 million | $34.7 million |
- Revenue increased 36.2% in Q3 and 44.6% for the nine months. Q3 segment revenue was Tech & Clearance $30.0 million (+30.4%), Finance $11.7 million (+28.8%), and Energy $4.1 million (up from $1.5 million).
- Operating income increased 70.9% in Q3 and 79.5% for the nine months. Net income increased about 51% and 80%, respectively.
- Calculated operating margin was approximately 32.0% in Q3 2011 versus 25.5% a year earlier, and 29.0% for the nine months versus 23.4%. Calculated net margin was 19.9% and 17.9% for Q3, and 17.9% and 14.4% for the nine-month periods, respectively.
- Nine-month sales and marketing expense rose 37.4% to $44.6 million; product development rose 61.9% to $7.5 million. Amortization fell 13.1% to $7.4 million as certain older acquired assets became fully amortized, partly offset by acquisition-related amortization.
- The nine-month effective tax rate rose to 36.5% from 24.5%; Q3 rate was 36.7% versus 8.0%. Management attributed the increase in part to state tax liabilities and acquisition-related contingent-payment differences; the prior-year comparison included tax benefits.
Cash, debt, and liquidity
- At September 30, cash and cash equivalents were $69.5 million and investments were $5.0 million, totaling $74.5 million, versus $45.2 million at December 31, 2010. Operating cash flow was $55.5 million; investing activities used $8.2 million and financing activities used $21.0 million.
- Long-term debt was $16.0 million, down from $41.0 million at year-end 2010, following $25.0 million of repayments. The $70.0 million revolving facility was undrawn; the company reported covenant compliance. Calculated cash and investments exceeded debt by approximately $58.5 million.
- Current assets were $95.7 million and current liabilities $97.2 million. Deferred revenue was $59.4 million, up from $49.2 million at year-end. The company said existing liquidity, operating cash generation, and available borrowing capacity should cover anticipated requirements for at least 12 months.
- Approximately $43.8 million of cash was held outside the U.S. and described as indefinitely reinvested. Management said U.S. cash and generation were sufficient to meet obligations without relying on foreign cash.
Material changes, outlook, and risks
- Growth reflected stronger recruitment activity and customer usage, improved revenue per customer, and the inclusion of Rigzone and WorldwideWorker for more of the comparative period. Dice.com recruitment-package customers increased to about 8,250 from 7,050 a year earlier; average monthly revenue per package customer increased about 12% in Q3 and 11% for the nine months.
- Management reported tougher market conditions in financial services and less urgent recruiting for technology professionals during Q3. It noted that recruitment activity is sensitive to economic and labor-market cycles and that revenue recognition can lag changes in customer purchasing.
- The Energy segment reported operating losses of $1.8 million in Q3 and $4.5 million for the nine months. Management attributed these mainly to intangible-asset amortization and higher acquisition earn-out estimates, rather than identifying them as an impairment indicator. WorldwideWorker goodwill fair value exceeded carrying value by about 7%; management warned deterioration in future performance could indicate impairment.
- Rigzone’s $12.7 million earn-out was paid in October 2011, after quarter-end. At September 30, acquisition-related contingent liabilities totaled $14.3 million, including the estimated Rigzone payment and WorldwideWorker consideration; reassess the balance in light of the subsequent payment.
- The board authorized repurchases of up to $30 million over one year. Through September 30, the company had bought 915,583 shares for approximately $8.3 million at an average $9.06 per share.
- No specific quantified revenue or earnings guidance was provided. Risks include recruitment-market weakness, competition, customer and job-seeker retention, unhedged foreign-currency exposure, and variable interest rates. Management reported no material legal proceedings; it recorded $3.8 million of unrecognized tax benefits and said up to $2.3 million might be recognized within 12 months. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether revenue and customer growth persist, particularly given management’s comments on softer Q3 recruiting conditions.
- The economics and outlook of the Energy segment after separating operating performance from amortization and acquisition-contingency charges.
- The settlement and remaining balance of acquisition earn-outs, especially the October 2011 Rigzone payment and the WorldwideWorker liability.
- Whether elevated sales, marketing, and product-development spending delivers sustained growth and margin improvement.
- Liquidity and capital allocation after repurchases, while monitoring foreign-currency risk, tax contingencies, and the WorldwideWorker goodwill headroom.