DHI Group, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. DHI provides specialized recruiting and career services, with one reportable segment, Tech-focused. The company divested or exited most non-tech businesses during 2018; prior segment results were recast to reflect the current structure.
Financial results
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $37.4m | $41.6m | $74.5m | $84.7m |
| Operating income | $3.8m | $1.1m | $7.4m | $7.9m |
| Net income (loss) | $3.1m | $(0.2)m | $4.6m | $3.3m |
| Diluted EPS | $0.06 | $0.00 | $0.09 | $0.07 |
- Q2 operating margin was 10%, versus 3% a year earlier. Six-month operating margin was 10%, versus 9%.
- Revenue declined 10% in Q2 and 12% in the first half, largely reflecting businesses divested in 2018 and the closure of Dice Europe. Ongoing Tech-focused revenue, excluding Dice Europe, rose 1% in Q2 and the first half; excluding foreign-exchange effects, management reported growth of 2% for both periods.
- ClearanceJobs revenue grew 17% in Q2 and 19% in the first half. Dice revenue declined 1% in both periods; eFinancialCareers declined 4%, primarily due to foreign exchange.
- Six-month adjusted EBITDA, a non-GAAP measure, was $17.6m, compared with $15.8m; adjusted EBITDA margin was 24%, versus 21%. Adjusted revenue was $74.5m versus $76.3m.
- Six-month operating cash flow was $14.4m, versus $8.3m. Investing used $3.6m, including $6.3m of fixed-asset purchases, partly offset by proceeds from business-sale escrows. Financing used $9.5m, primarily for $8.0m of net debt repayments and $1.5m of share purchases.
- Cash was $7.6m at June 30, 2019, up from $6.5m at year-end 2018. Accounts receivable was $19.0m; deferred revenue was $58.0m, up from $56.1m at year-end.
- Debt under the revolving facility was $10.0m gross ($9.4m net of financing costs), with $80.0m available under the $90m facility, subject to restrictions. The facility matures in November 2023; the company reported covenant compliance and no scheduled principal payments before maturity.
Changes, outlook, and risks
- Q2 operating income improved as cost savings and the closure of lower-margin Dice Europe more than offset lower consolidated revenue. First-half 2018 operating results included a $3.8m gain on sale of businesses; Q2 2019 included a $0.5m additional Hcareers sale loss after escrow and working-capital matters were finalized.
- Management said existing U.S. cash, operating cash generation, and borrowing capacity should cover anticipated requirements for at least the next 12 months. No formal revenue or earnings guidance is provided in the filing. The company’s Dice trademark valuation projections assume revenue is flat and then increases from 2018 levels; those projections are not guaranteed.
- Management cited competition, product-development and customer-value challenges, recruiting-market cyclicality, and possible slower demand in technology, finance, and security-cleared hiring. Brexit-related uncertainty and unhedged foreign-currency exposure may affect results.
- The $39.0m Dice trademark had fair value only 2% above carrying value in the October 2018 impairment test. The company reported no impairment, but said failure to achieve projected cash flows could lead to a future charge. Tech-focused goodwill was $153.8m; its October 2018 fair value exceeded carrying value by 40%. Lower results or higher discount rates could result in impairment.
- A proposed settlement of an FCRA class action had preliminary court approval, with final approval scheduled for August 2019. The company had recorded a $1.0m liability. Management stated other ordinary-course legal matters were not expected to materially affect financial condition, operations, or liquidity.
- Adoption of lease accounting in 2019 added $17.8m of operating lease liabilities at June 30, 2019. The company also had $11.5m of unrecognized stock-based compensation expense expected to be recognized over approximately 1.6 years.
Important facts for investors to verify
- Whether growth in ongoing Tech-focused revenue, especially at ClearanceJobs, offsets continued softness at Dice and eFinancialCareers.
- Whether operating cash flow and deferred-revenue trends remain strong, and whether the company sustains its cost reductions while investing in products.
- Debt availability and covenant headroom under the revolving credit facility, including any effects of lower operating results.
- Progress on the FCRA settlement and any changes in tax contingencies or other legal matters.
- Assumptions and valuation headroom for the Dice trademark and Tech-focused goodwill, given the disclosed sensitivity to revenue, margins, market conditions, and discount rates.