DHI Group, Inc. (filed as Dice Holdings, Inc.) — Q2 2012 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2012. The company operates specialized career and recruiting websites, with Tech & Clearance, Finance, and Energy reportable segments. Financial amounts below are in U.S. dollars.
Financial performance
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $48.5 million | $44.9 million | $94.6 million | $85.0 million |
| Operating income | $15.7 million | $12.5 million | $29.6 million | $23.2 million |
| Net income | $9.5 million | $7.7 million | $18.1 million | $14.3 million |
| Diluted EPS | $0.14 | $0.11 | $0.27 | $0.20 |
| Operating margin | 32.4% | 27.8% | 31.3% | 27.4% |
- Q2 revenue grew 8.0%; first-half revenue grew 11.3%. Tech & Clearance and Energy led growth, while Finance contracted.
- First-half operating cash flow was $34.2 million, down from $38.2 million. Capital expenditures were $3.1 million; company-presented free cash flow after those expenditures was $31.1 million, versus $34.7 million.
- At June 30, cash and cash equivalents were $50.8 million and investments were $5.7 million, totaling $56.5 million. Cash, cash equivalents, and investments were $60.2 million at year-end 2011. Deferred revenue rose to $66.8 million from $60.9 million.
- Total debt was $15.0 million, all under the new revolving facility; $140.0 million of borrowing capacity remained. Stockholders’ equity was $197.9 million.
- Adjusted EBITDA, a company-defined non-GAAP measure, was $38.7 million for the first half, compared with $34.4 million.
Material changes and management commentary
- Tech & Clearance: Q2 revenue rose 14.1% to $32.2 million; first-half revenue rose 17.4% to $63.3 million. Dice.com recruitment-package customers increased to approximately 8,600 from 8,050 a year earlier. Average monthly revenue per package customer rose approximately 5% in Q2 and 6% for the first half.
- Finance: Q2 revenue fell 15.3% to $9.8 million; first-half revenue fell 10.6% to $19.8 million. Management attributed weakness to reduced recruiting activity amid the global slowdown, European debt crisis, and U.K. recession. Foreign exchange reduced first-half revenue by approximately $0.4 million.
- Energy: Q2 revenue increased 25.0% to $5.3 million; first-half revenue increased 27.7% to $9.3 million, reflecting customer growth, greater usage, and more advertising and events.
- Operating income growth reflected revenue gains and lower amortization; the prior-year periods also included acquisition-contingency charges. Product development and sales and marketing costs increased. First-half interest expense rose 74.2%, including a $0.8 million write-off of prior-facility financing costs.
Liquidity, financing, outlook, and risks
- In June 2012, the company replaced its prior credit facility with a $155 million revolving facility maturing in June 2017. Borrowings had variable rates; the company was in compliance with financial and other covenants at June 30. The agreement restricts, among other things, certain share repurchases, acquisitions, investments, and additional debt.
- The company repurchased approximately 2.3 million shares in Q2 for approximately $22.4 million at an average $9.74 per share. First-half repurchase-plan payments were $34.1 million. Approximately $40.4 million remained authorized under the $65 million plan at June 30.
- Management said available cash, investments, operating cash flow, and borrowing capacity were expected to meet anticipated requirements for at least 12 months. No formal revenue or earnings guidance was provided.
- Key risks include cyclicality and weaker recruiting demand, particularly in Finance; competition and the need to keep websites relevant; acquisition integration and execution; foreign-currency exposure (the company does not hedge currency risk); variable interest rates; and lender availability or refinancing risk. A 1% increase in interest rates was estimated to add approximately $75,000 to interest expense on current borrowings for the remainder of 2012.
- The company reported no material legal proceedings and no material changes to previously disclosed risk factors. It recorded approximately $4.1 million of unrecognized tax benefits and said up to $2.4 million could be recognized within 12 months due to statute-of-limitations lapses.
- Recent developments included the June 29 purchase of FINS.com assets and an exclusive agreement with Dow Jones to operate U.S. online career centers for WSJ.com and MarketWatch.com. The acquisition was described as not significant to reported results. The WorldwideWorker brand and technology were retired, and acquisition earn-out payments for WorldwideWorker and Rigzone were completed.
Important facts for investors to verify
- Whether Finance-segment recruiting demand continues to weaken and how it affects revenue and margins.
- Whether Tech & Clearance customer and revenue-per-customer growth is sustained, and how investments in product development and marketing affect returns.
- Cash generation relative to share repurchases, remaining authorization, and the credit facility’s covenants and restrictions.
- Integration, costs, and revenue contribution from FINS.com and the Dow Jones career-center agreement.
- Exposure to foreign exchange, variable-rate debt, and the timing and outcome of tax contingencies.