DHI Group, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2021. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Business context
DHI operates technology-focused career marketplaces, principally Dice and ClearanceJobs. On June 30, 2021, it transferred majority ownership and control of eFinancialCareers (eFC) to its management, retaining a 40% interest. eFC is presented as a discontinued operation, and ongoing operations are U.S.-based.
Financial and operating highlights
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue from continuing operations | $30.8 | $27.1 | $86.2 | $84.1 |
| Operating loss | $(2.2) | $(28.5) | $(1.9) | $(33.4) |
| Net loss | $(2.4) | $(27.3) | $(30.0) | $(32.0) |
| Adjusted EBITDA (non-GAAP) | Not provided clearly for the quarter | Not provided clearly for the quarter | $19.1 | $17.6 |
- Q3 revenue rose 13% year over year: Dice revenue increased 12% to $22.3 million and ClearanceJobs increased 16% to $8.5 million. Nine-month revenue rose 2%; Dice declined 1% while ClearanceJobs grew 14%.
- Q3 operating margin was negative 7.2%, versus negative 104.9% a year earlier. Nine-month operating margin was negative 2.2%, versus negative 39.7%. The comparison chiefly reflects substantial goodwill and intangible-asset impairments recorded in 2020.
- Nine-month Adjusted EBITDA margin was 22%, compared with 21% in 2020. This is a non-GAAP measure and should not be treated as a substitute for GAAP results or cash flow.
- Nine-month operating cash flow was $25.6 million, up from $14.4 million. Investing activities used $15.5 million; financing activities used $14.3 million.
- At September 30, cash was $3.5 million, long-term debt net of financing costs was $17.7 million ($18.0 million borrowed), and total available revolving capacity was $72.0 million, subject to limitations. The credit facility matures in November 2023; the company reported covenant compliance.
- Deferred revenue was $43.4 million and reported backlog was $79.9 million, up 48% year over year. Backlog includes deferred revenue and unbilled contractual commitments.
Material changes and unusual items
- The eFC transfer generated a nine-month discontinued-operations loss of $29.3 million, including a $28.1 million foreign-currency translation reclassification and $5.2 million from removal of eFC net assets, partly offset by the recorded $3.6 million retained investment and eFC earnings. This significantly affects nine-month net loss; continuing-operations loss was $0.6 million.
- DHI recorded a $1.9 million Q3 impairment of an operating lease right-of-use asset, citing COVID-19 effects on real estate markets and expected cash flows. No goodwill or intangible impairment was recorded in 2021; 2020 included $22.6 million of goodwill and $15.2 million of intangible impairment for the nine-month period.
- Sales and marketing expense rose 25% in Q3, reflecting higher compensation, marketing spending and operating costs. Depreciation increased 82% in Q3 as previously capitalized development costs entered service.
- The company repurchased 1.82 million shares for $6.8 million during Q3; $11.0 million remained authorized under its repurchase plan at quarter-end.
Outlook, risks and contingencies
Management provided no specific numerical revenue or earnings guidance in this filing. It said customer demand and bookings benefited from a strong technology recruitment market, and stated that cash, operating cash generation and available credit were expected to cover anticipated needs for at least the next 12 months. Management also cautioned that COVID-19 may continue to affect results in coming months and that the ultimate impact remains uncertain.
Key risks include recruitment-market cyclicality, competition, execution of the technology-focused strategy, customer and candidate engagement, and possible future impairment if projected results or market conditions weaken. The company has variable-rate debt and noted uncertainty around the transition away from LIBOR. Foreign-exchange exposure is reduced following the eFC transfer but remains through investments with foreign operations; the company does not hedge currency risk. Management said ordinary-course claims and litigation were not expected to materially affect the company; no material pending legal proceedings were reported. Disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- How the eFC transfer and retained 40% investment will affect future earnings, cash distributions and valuation.
- Whether backlog converts to recognized revenue and whether customer growth and renewal trends continue at Dice and ClearanceJobs.
- Cash generation after capital expenditures, share repurchases and debt service, given the $3.5 million cash balance.
- Debt covenant headroom, borrowing availability and the effects of variable interest rates and the LIBOR transition.
- Assumptions supporting goodwill and Dice trademark valuations, and potential exposure to further lease-asset impairment.