DHI Group, Inc. (filed as Dice Holdings, Inc.) — Q3 2012 Form 10-Q
Reporting period: Three and nine months ended September 30, 2012. The company operates specialized employment and career websites across Tech & Clearance, Finance, Energy, and Other markets.
Financial performance and liquidity
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $48.0 million | $46.8 million | $142.6 million | $131.8 million |
| Operating income | $14.7 million | $15.0 million | $44.3 million | $38.2 million |
| Net income | $11.0 million | $9.3 million | $29.1 million | $23.6 million |
| Diluted EPS | $0.17 | $0.13 | $0.44 | $0.34 |
| Operating cash flow | Not separately reported for the quarter | $44.5 million | $55.5 million |
- Q3 revenue rose 2.6%; operating income declined 1.9%, while net income increased 18.2%. Operating margin was approximately 30.6% versus 32.0% a year earlier; net margin was approximately 22.9% versus 19.9%.
- For the first nine months, revenue grew 8.2%, operating income 15.8%, and net income 23.0%. Operating margin was approximately 31.1% versus 29.0%; net margin was approximately 20.4% versus 17.9%.
- Nine-month operating cash flow was $44.5 million, down from $55.5 million. Company-defined free cash flow, calculated as operating cash flow less fixed-asset purchases, was $40.5 million versus $50.2 million.
- At September 30, cash and cash equivalents were $46.3 million and investments were $3.7 million. Debt was $42.0 million, all under the revolving facility; $113.0 million of borrowing capacity remained. Current assets were $75.4 million and current liabilities $83.5 million.
- Deferred revenue increased to $66.1 million from $60.9 million at year-end 2011. The company reported $50.0 million in cash, cash equivalents, and investments combined.
Changes and business drivers
- Tech & Clearance revenue grew 10.0% in Q3 and 14.7% for the nine months, supported by more recruitment-package customers and higher customer usage/yield. Energy revenue grew 10.1% and 21.4%, respectively.
- Finance revenue fell 20.1% in Q3 and 13.9% for the nine months, which management attributed to weaker hiring amid the European debt crisis and UK recession. Other revenue increased in both periods.
- Q3 operating income was pressured by higher operating costs, particularly product development. For the nine-month period, operating income benefited from revenue growth, lower amortization, and no acquisition-contingency expense, partly offset by higher marketing and product-development spending.
- Q3 and nine-month effective tax rates were 23.6% and 31.8%, respectively, below prior-year comparable rates. The company cited reductions in uncertain-tax-position accruals following statute-of-limitations expirations.
Outlook, transactions, and risks
- The filing provides no formal revenue or earnings guidance. Management said existing cash, operating cash generation, investments, and available credit were expected to meet anticipated needs for at least the next 12 months.
- In September, the company acquired Geeknet Media (Slashdot, SourceForge, and Freecode) for $20.0 million in cash, including $3.0 million held in escrow. The acquisition contributed $761,000 of Q3 revenue and an operating loss of $203,000. In October, after quarter-end, the company acquired a recruitment-technology business for $10.0 million cash plus up to $10.0 million in deferred product-delivery payments.
- The company entered a new $155.0 million revolving credit agreement maturing in June 2017; it reported compliance with all covenants at quarter-end. The agreement includes leverage and interest-coverage tests and restrictions, including on repurchases and acquisitions.
- During the nine months, the company spent $56.8 million repurchasing shares. Q3 purchases totaled approximately 2.7 million shares at an average $8.15 per share; approximately $18.0 million remained authorized under the repurchase plan.
- Key risks include cyclical recruiting demand, continued weakness in Finance markets, competition and the need to keep websites relevant, acquisition integration, foreign-currency exposure, and access to borrowing or refinancing. The company did not hedge currency risk. It reported no material legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether growth in Tech & Clearance and Energy can offset continued weakness in Finance, and how recruitment activity and customer metrics develop.
- The cash-flow decline relative to earnings, including the effects of billing, collections, deferred revenue, and tax-payment timing.
- Geeknet Media’s subsequent contribution to revenue and operating results, integration progress, and the October acquisition’s deferred-payment conditions.
- Debt, covenant headroom, variable-rate exposure, and the effect of ongoing repurchases on liquidity and share count.
- The sustainability of reported earnings and tax rates, including the impact of lower amortization and tax accrual releases.