DHI Group, Inc. — Q3 2022 Form 10-Q
Business context and reporting period
For the quarter and nine months ended September 30, 2022. DHI operates a single Tech-focused segment, principally through the Dice and ClearanceJobs career marketplaces. Its eFinancialCareers business was deconsolidated in June 2021 and is reported as a discontinued operation for the applicable prior-year period; DHI retained a 40% interest.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $38.5m | $30.8m | $109.9m | $86.2m |
| Operating income (loss) | $1.2m | $(2.2)m | $2.8m | $(1.9)m |
| Net income (loss) | $(0.9)m | $(2.4)m | $1.8m | $(30.0)m |
| Diluted EPS | $(0.02) | $(0.05) | $0.04 | $(0.64) |
| Operating margin | 3.2% | (7.2)% | 2.5% | (2.2)% |
- Q3 revenue rose 25% year over year: Dice revenue increased 23% to $27.3m and ClearanceJobs revenue increased 32% to $11.2m. For the first nine months, revenue rose 28%.
- Q3 operating income improved despite higher investment in sales, marketing, and product development. Net loss included a $2.3m impairment of an investment; the prior-year quarter included a $1.9m lease-asset impairment.
- Nine-month Adjusted EBITDA, a non-GAAP measure, was $22.9m versus $19.1m; Adjusted EBITDA margin was 21% versus 22%.
- Nine-month operating cash flow was $28.7m, compared with $25.6m. Investing activities used $13.1m, including $13.4m of fixed-asset purchases, primarily capitalized product development. Financing activities used $13.3m, including net share repurchases and debt activity.
- Cash was $3.8m at September 30, 2022, versus $1.5m at December 31, 2021. The company had $30.0m drawn on its $100m revolving facility and $70.0m available, subject to facility terms. The facility matures in June 2027; the stated borrowing rate was 5.40%. DHI reported compliance with financial covenants.
- Backlog was $102.9m, up 29% year over year, comprising $52.3m deferred revenue and $50.6m of uninvoiced contractual commitments.
Changes, outlook, and risks
- Growth reflected stronger renewal rates, new customer activity, increased customer counts, and demand for cleared professionals. At September 30, Dice had 6,409 recruitment-package customers, up 11%, and ClearanceJobs had 2,030, up 12%. Average annual revenue per customer also increased for both brands.
- In June 2022, DHI refinanced its prior credit agreement with a $100m revolving facility, replacing a $90m facility and extending maturity from 2023 to 2027. Debt was $30.0m, compared with $23.0m at year-end 2021.
- DHI expects 2022 capital expenditures of approximately $19m, primarily for new products and features. Management said cash, operating cash flows, and available borrowing capacity should meet anticipated needs for at least the next 12 months; this is not a revenue or earnings forecast.
- Management cited recruitment-market cyclicality, competition, customer demand and collections, product execution, data-privacy regulation, COVID-19 uncertainty, and debt availability/covenants as risks. A 1 percentage-point increase in interest rates was estimated to raise interest expense by about $0.1m in 2022 and $0.3m annually thereafter.
- The company recorded a $2.3m impairment after a convertible note investment converted into preferred shares valued at $0.7m. It also recorded $0.6m of Q3 equity-method income from its retained eFC investment. DHI sold its Rigzone interest during Q2 for $0.3m and recorded a gain.
- There were no material changes to previously disclosed risk factors, and management reported no material pending legal proceedings. Approximately $1.0m of unrecognized tax benefits was accrued; up to $0.2m may be recognized within 12 months. Disclosure controls were assessed as effective.
Key facts for investors to verify
- Whether customer growth, renewals, and backlog convert into recognized revenue if technology hiring demand weakens.
- Whether sales and marketing and product-development spending can support growth while improving operating and Adjusted EBITDA margins.
- The valuation and future performance of the impaired preferred-share investment and the retained eFC equity-method investment.
- Available revolving-credit capacity, covenant headroom, and exposure to higher variable interest rates.
- Actual capital expenditures versus the approximately $19m 2022 estimate, and cash generation after investment and repurchases.
- Comparability of prior-year results, particularly the 2021 eFC disposal loss and lease impairment, and the effect of share-based compensation on earnings and dilution.