DHI Group, Inc. (then named Dice Holdings, Inc.) — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014. Financial amounts below are in U.S. dollars; statement amounts are converted from thousands to millions where appropriate.
Business context
The company operated specialized online recruiting and professional-community businesses across Tech & Clearance, Finance, Energy, Healthcare and Hospitality, plus Corporate & Other. Recent acquisitions expanded its Healthcare, Hospitality, Energy and technology businesses.
Financial performance and liquidity
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $67.6m | $52.6m | $194.8m | $155.1m |
| Operating income | $13.4m | $11.5m | $34.3m | $35.7m |
| Net income | $9.5m | $7.1m | $21.1m | $22.1m |
| Diluted EPS | $0.18 | $0.12 | $0.39 | $0.37 |
| Operating margin | 19.9% | 21.9% | 17.6% | 23.0% |
| Net margin | 14.0% | 13.4% | 10.8% | 14.3% |
| Operating cash flow | — | $47.6m | $40.8m |
- Q3 revenue increased 28.5%, while operating income rose 16.6%. Nine-month revenue increased 25.7%, but operating income fell 3.9% and net income fell 4.6%.
- Q3 revenue growth included acquired businesses and stronger Energy and Finance results. Dice.com revenue declined about $0.24m in Q3; recruitment-package customers decreased to approximately 8,000 from 8,450 a year earlier, while average monthly revenue per customer increased about 5%.
- Nine-month free cash flow, as defined by the company (operating cash flow less fixed-asset purchases), was $40.9m, versus $32.6m. Adjusted EBITDA, a non-GAAP measure, was $64.3m versus $53.4m.
- Cash and cash equivalents were $27.0m at September 30, 2014, down from $39.4m at year-end 2013. Total debt was $113.1m, compared with $119.0m at year-end; $135.0m remained available under the revolving facility. The company reported compliance with its financial covenants.
- Deferred revenue was $81.9m, versus $77.4m at year-end. Current assets were $77.3m and current liabilities $122.0m; deferred revenue is a substantial current liability in this subscription-oriented business.
Changes, outlook and risks
- OilCareers was acquired in March 2014 for approximately $26.4m in cash including working-capital settlement. Acquired businesses contributed materially to reported growth; onTargetjobs contributed $28.5m of nine-month revenue but reported $2.6m of operating losses, primarily reflecting acquired-intangible amortization.
- Higher cost of revenue, depreciation and intangible amortization, alongside acquisition-related operating costs, pressured nine-month profitability. Interest expense increased to $2.9m from $1.1m for the nine-month period, mainly because of higher debt associated with acquisitions.
- The company gave no specific numerical revenue or earnings guidance in the provided filing. Management said cash, operating cash generation and available credit were expected to cover anticipated requirements for at least the next 12 months. This outlook is subject to demand, lender availability and other risks.
- Management cited recruitment-market cyclicality, competition, customer and candidate engagement, acquisition integration, foreign-exchange exposure and debt/refinancing risks. Approximately 28% of nine-month revenue came from outside the U.S.; the company did not hedge currency exposure. A 1% decline in pound sterling versus the U.S. dollar would have reduced nine-month revenue by approximately $0.35m, according to the filing.
- Acquisition-related contingent consideration was $9.0m at quarter-end. The company also expected $4.0m of IT Job Board deferred payments by January 2015; it reported that a final $5.0m WorkDigital payment was made in October 2014. Operating lease commitments totaled $22.0m. Management said ordinary-course legal matters were not expected to materially affect the company; no material pending legal proceedings were reported.
- The company repurchased 1.06m shares in Q3 for approximately $8.7m, at an average $8.22 per share. About $22.0m remained authorized under the repurchase plan. Management stated disclosure controls were effective; the internal-control assessment excluded recently acquired OilCareers, and implementation of the global billing system remained ongoing.
Important facts for investors to verify
- How much of reported revenue growth reflects acquisitions versus organic performance, particularly at Dice.com and in Healthcare and Hospitality.
- Whether customer counts, retention, usage and revenue per customer improve, and whether acquisition-related businesses become profitable after amortization and integration costs.
- Cash generation and working-capital trends, including the decline in cash and the sustainability of deferred-revenue growth.
- Debt, covenant headroom, variable-rate exposure, refinancing capacity and the timing of contingent and deferred acquisition payments.
- Potential goodwill or intangible-asset impairment, foreign-currency effects and any material developments in tax contingencies or internal-control implementation.