Business context and reporting period
DHI Group, Inc. metadata identifies the company, but the filing is by Dice Holdings, Inc. The unaudited Form 10-Q covers the three months ended March 31, 2014, compared with the first quarter of 2013. The company operates specialized recruitment and professional-community websites across Tech & Clearance, Finance, Energy, Healthcare and Hospitality, plus other businesses.
Financial performance and liquidity
| Metric | Q1 2014 | Q1 2013 or comparison |
|---|---|---|
| Revenue | $60.7 million | $50.4 million; up 20.3% |
| Operating income / margin | $7.9 million / 13.0% | $11.5 million / 22.7% |
| Net income / margin | $4.4 million / 7.2% | $7.1 million / 14.0% |
| Diluted EPS | $0.08 | $0.12 |
| Operating cash flow | $12.0 million | $21.9 million |
| Free cash flow (company-defined) | $9.5 million | $19.0 million |
| Adjusted EBITDA (non-GAAP) | $18.6 million | $16.9 million |
Gross margin, calculated as revenue less cost of revenues, was 85.4%, compared with 89.9% a year earlier. Cash and equivalents were $18.0 million at quarter-end, down from $39.4 million at December 31, 2013. Debt was $121.4 million, implying approximately $103.3 million of net debt. The company had $128.0 million available under its revolving facility and stated that cash, operating cash generation and available borrowing capacity should meet anticipated needs for at least 12 months. Approximately $12.0 million of cash was held outside the United States and described as indefinitely reinvested.
Material changes versus the prior period
- Revenue increased $10.3 million, but growth included acquired businesses. Healthcare revenue was $6.5 million versus $0.6 million, and Hospitality revenue was $2.9 million versus none, reflecting acquisitions in November 2013. OilCareers contributed $0.2 million to Energy revenue after its March 2014 acquisition.
- Dice.com revenue declined $1.3 million, and its recruitment-package customer count fell from 8,650 to 8,000 year over year; average monthly revenue per customer increased approximately 3%. Tech & Clearance revenue overall rose 1.5%.
- Operating expenses rose 35.5% to $52.8 million, outpacing revenue growth. Amortization increased to $4.3 million from $1.7 million, and depreciation to $2.8 million from $1.7 million, primarily reflecting acquisitions. Operating income fell 31.2%, and net income fell 37.9%.
- Operating cash flow declined mainly with higher accounts receivable and lower accounts payable and accrued expenses. Investing cash outflow increased to $29.3 million, principally due to the $26.1 million OilCareers purchase. The quarter also included $6.9 million of share repurchases.
- Interest expense rose to $0.9 million from $0.4 million, reflecting higher borrowings. Foreign currency translation losses were $1.1 million, versus $4.8 million a year earlier.
Outlook, risks and unusual items
No numerical revenue or earnings guidance is provided. Management said liquidity was sufficient for anticipated requirements, while noting that weaker product demand, lender availability or inability to refinance could affect liquidity. Management described recruitment activity in Finance as improving during the quarter, but said Finance and technology recruiting conditions had been challenging from the second half of 2011 into 2014; continued slow recruitment could hurt results. The company also cited competition, customer and professional-user retention, acquisition integration, economic cyclicality, foreign exchange, interest-rate exposure and debt covenants as risks.
OilCareers was acquired for $26.1 million cash; its purchase-price allocation was preliminary and expected to be finalized in Q2 2014. The filing reported $8.8 million of onTargetjobs revenue and a $1.8 million operating loss for the quarter, primarily due to acquired-intangible amortization. Goodwill and acquired intangible assets increased substantially. The company was in compliance with credit-facility financial covenants and reported no material pending legal proceedings. It reported no material changes to previously disclosed risk factors. The new global billing system remained under implementation; OilCareers was excluded from the quarter’s internal-control effectiveness assessment as a recently acquired business.
Important facts for investors to verify
- How much of reported revenue growth and future performance comes from acquired businesses versus organic growth, particularly given the decline in Dice.com customers and revenue.
- Whether acquired businesses, especially Healthcare and Hospitality, can improve profitability after acquisition-related costs and amortization.
- Cash conversion and working-capital trends, given the sharp year-over-year decline in operating cash flow and quarter-end cash.
- Debt repayment capacity, variable-rate exposure, covenant headroom and the timing and likelihood of acquisition-related contingent payments.
- The final OilCareers purchase accounting, including goodwill and intangible-asset valuations, and any subsequent impairment indicators.
- The issuer-name discrepancy between the request metadata and the filing, which identifies Dice Holdings, Inc.