DHI Group, Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing is an annual report, not a standalone Q4 filing; Q4 results are noted separately below. DHI provides specialized recruiting, job-posting, candidate-search and career services, increasingly focused on technology, security-cleared and financial-services professionals.
Financial performance
| Metric | FY 2018 | FY 2017 | Change |
|---|---|---|---|
| Revenue | $161.6 million | $208.0 million | -22.3% |
| Adjusted revenue (non-GAAP) | $152.3 million | $158.5 million | -3.9% |
| Operating income | $11.7 million | $22.9 million | -48.9% |
| Operating margin | 7.2% | 11.0% | -3.8 percentage points |
| Income before taxes | $9.6 million | $19.4 million | -50.5% |
| Net income | $7.2 million | $16.0 million | -55.1% |
| Diluted EPS | $0.14 | $0.33 | -57.6% |
| Adjusted EBITDA / margin (non-GAAP) | $32.0 million / 21% | $37.0 million / 23% | -13.4% / -2 points |
| Cash from operating activities | $14.9 million | $34.4 million | -56.7% |
Reported revenue fell sharply mainly because DHI sold or transferred several businesses during 2017–2018. Excluding divested businesses, adjusted revenue declined 3.9%. Tech-focused revenue was $152.3 million, down 3.9%; Dice U.S. revenue fell 6.9%, while ClearanceJobs grew 21.6% and eFinancialCareers grew 3.9%. Dice U.S. recruitment-package customers declined to approximately 6,200 from 6,450, while average monthly revenue per customer edged up to $1,119 from $1,110.
Q4 2018: Revenue was $38.0 million versus $50.9 million in Q4 2017; operating income was $2.3 million versus $12.0 million; net income was $2.9 million versus $11.8 million; diluted EPS was $0.06 versus $0.24. Prior-year Q4 included $6.7 million from the Health eCareers sale and $3.3 million of OilPro restitution proceeds.
Cash, debt and liquidity
- Cash at year-end was $6.5 million, down from $12.1 million. Operating cash flow was $14.9 million; investing activities provided $7.5 million, including $17.5 million net cash proceeds from business sales and $10.1 million of capital expenditures. Financing activities used $27.2 million, including $24.0 million in net debt repayments and $2.0 million of share repurchases.
- Debt was $18.0 million gross ($17.3 million net of deferred financing costs), down from $42.0 million gross at year-end 2017. The new revolving credit agreement provides $90 million of capacity, with $72 million available at year-end, and matures in November 2023. DHI reported compliance with financial covenants.
- Management said U.S. cash, operating cash generation and available credit were expected to meet anticipated needs for at least the next 12 months. The credit facility is subject to financial covenants and lender availability.
- Deferred revenue was $56.1 million, versus $83.6 million. Management attributed the decrease to divestitures and more flexible customer billing terms. Total assets were $258.4 million and stockholders’ equity was $145.4 million.
Material changes, outlook and notable items
- DHI sharpened its tech-focused strategy and exited or reduced its exposure to non-core businesses: Hcareers was sold; the RigLogix portion of Rigzone was sold and majority ownership of remaining Rigzone transferred to management; majority ownership of BioSpace transferred to management; and Dice Europe ceased operations.
- Disposition-related and other costs rose to $7.6 million from $4.7 million, primarily for severance, lease exits, business closures, professional fees and restructuring. FY 2018 also included $3.4 million of net gains on business sales. FY 2017 included $6.7 million of sale gains and $3.3 million of restitution proceeds.
- Operating cash flow declined partly because of weaker earnings and working-capital changes, including an $18.9 million reduction in deferred revenue. Capital expenditures planned for 2019 were approximately $8–$10 million.
- The filing provides no formal consolidated revenue or earnings guidance. In its Dice brand impairment analysis, management’s projections assumed a modest revenue increase in 2019 and slightly lower operating expenses (excluding specified items), followed by modest operating-margin improvement; these are assumptions, not firm guidance.
- Adoption of ASC 606 in 2018 increased opening retained earnings by $4.5 million. The standard increased reported FY 2018 operating income by $1.8 million and net income by $1.3 million versus the filing’s presentation of results without adoption; operating cash flow was unchanged.
- The $154.0 million of goodwill was concentrated in the Tech-focused reporting unit. Its tested fair value exceeded carrying value by 40% at October 1, 2018, but the Dice trademark’s fair value exceeded carrying value by only 2%. Lower-than-projected cash flows or adverse market changes could lead to impairment.
- A $1.0 million liability was recorded for a proposed settlement of a class action alleging violations of the Fair Credit Reporting Act. Preliminary approval was scheduled for March 2019; final court approval remained outstanding at filing.
- Other key risks include competition and difficulty demonstrating recruiting attribution, customer renewal declines, economic and hiring-market cyclicality, data privacy and cybersecurity obligations (including GDPR and forthcoming California privacy requirements), foreign-exchange exposure, and uncertainty related to Brexit. Approximately 25% of FY 2018 revenue came from outside the U.S.; DHI did not hedge currency risk.
Important facts for investors to verify
- Whether Dice customer retention and revenue trends improve, and whether the company can demonstrate value attribution to recruiting customers.
- Whether the tech-focused strategy delivers growth and margin improvement after divestitures and restructuring costs.
- Future cash generation, billing and deferred-revenue trends, and the availability of the revolving credit facility under its covenants.
- The assumptions supporting the Dice trademark and goodwill valuations, particularly given the narrow trademark valuation cushion.
- The status and final cost of the FCRA settlement, remaining divestiture-related obligations and any tax contingencies.
- How ASC 606 and the new lease accounting standard affect reported comparability; DHI estimated lease adoption would add approximately $16–$18 million of right-of-use assets and $17–$19 million of lease liabilities in 2019.