Business context and reporting period
Dice Holdings, Inc. filed this Form 10-K for the fiscal year ended December 31, 2012. The company operates specialized recruitment and career websites serving technology and security-cleared, finance, energy and healthcare professionals, and online technology media properties. Revenue is primarily from recruitment packages, job postings and resume-database access; Slashdot Media also generates advertising revenue.
Financial performance and liquidity
| Metric | FY 2012 | FY 2011 | Change |
|---|---|---|---|
| Revenue | $195.4 million | $179.1 million | +9.1% |
| Operating income | $58.9 million | $54.9 million | +7.2% |
| Operating margin | 30.1% | 30.7% | -0.6 percentage points |
| Net income | $38.1 million | $34.1 million | +11.7% |
| Net margin | 19.5% | 19.0% | +0.5 percentage points |
| Diluted EPS | $0.59 | $0.49 | +20.4% |
| Operating cash flow | $54.7 million | $64.5 million | Down $9.8 million |
| Adjusted EBITDA (non-GAAP) | $77.4 million | $77.6 million | Down slightly |
Fourth-quarter 2012 revenue was $52.7 million, versus $47.4 million in fourth-quarter 2011. Quarterly operating income was $14.6 million versus $16.7 million, and net income was $9.0 million versus $10.5 million.
At year-end, cash and cash equivalents were $40.0 million and investments were $2.2 million. Debt was $46.0 million, with $109.0 million of additional borrowing capacity under a $155 million revolving facility due June 2017. The company reported compliance with its covenants and stated that available liquidity and expected operating cash flows should meet anticipated needs for at least 12 months. Deferred revenue increased to $69.4 million from $60.9 million.
Material changes versus the prior comparable period
- Tech & Clearance revenue rose 16.0% to $133.4 million, including $5.4 million from acquired Slashdot Media. The company cited more recruitment-package customers and higher average revenue per customer; Dice.com visitor counts declined 6% year over year.
- Finance revenue fell 14.7% to $38.4 million amid weaker hiring, especially in Europe and the UK. Management described softer finance-sector conditions beginning in the second half of 2011 and continuing through 2012.
- Energy revenue grew 22.5% to $19.1 million, attributed to customer growth, higher usage and advertising, and an expanded sales force.
- Product development expense increased 57.3% to $16.2 million; sales and marketing rose 10.0% to $65.0 million. These increases, along with higher other operating costs, contributed to operating margin compression.
- Operating cash flow declined despite higher net income, which the company attributed primarily to slower sales beginning in the second quarter and timing of customer collections and tax payments.
- Net debt increased from $15.0 million to $46.0 million. The company repurchased approximately 7.7 million shares during 2012 for about $68.6 million.
Outlook, commentary, risks and unusual items
The filing provides no specific revenue or earnings guidance. Management’s strategy is to grow specialized professional communities, retain and add recruitment customers, improve products and content, expand internationally and selectively pursue acquisitions. Planned 2013 capital expenditures were approximately $6–$8 million. The company expected up to $10 million of WorkDigital contingent consideration to be paid in 2013–2014 if product and milestone conditions are met.
Key risks include economic and hiring cyclicality, continued weakness in finance recruitment, competition and changing recruiting technology, dependence on attracting professionals and recruitment-package customers, website availability and cybersecurity, privacy and regulatory obligations, foreign exchange exposure, and integration and performance of acquisitions. Approximately 20% of 2012 revenue was generated outside the U.S.; the company did not hedge currency risk. Goodwill was $202.9 million, approximately 57% of total assets, making impairment assumptions important.
2012 acquisitions included Slashdot Media, FINS.com and WorkDigital. Slashdot Media contributed $5.4 million of reported revenue and an operating loss of $141,000, primarily reflecting acquired-intangible amortization. The 2012 results also included a $765,000 write-off of prior deferred financing costs following refinancing. No material pending legal proceedings were reported. Deloitte issued unqualified opinions on the financial statements and internal controls; the internal-control assessment excluded recently acquired Slashdot Media.
Important facts for investors to verify
- Whether the Finance segment’s hiring slowdown persisted or improved after year-end, and how it affected revenue and customer renewals.
- Whether revenue growth and margins in Tech & Clearance and Energy offset weaker Dice.com traffic and continued product-development and marketing spending.
- Whether operating cash flow recovered and deferred revenue converted into recognized revenue as expected.
- Debt, covenant headroom, borrowing availability and the effect of further share repurchases on liquidity; the board authorized an additional $50 million repurchase program in January 2013, effective after the prior authorization is completed.
- Integration, performance and contingent-payment milestones for WorkDigital, and the contribution and user retention of Slashdot Media.
- Potential goodwill or intangible-asset impairment, tax contingencies, and the company’s exposure to foreign exchange and privacy or cybersecurity events.