DHI Group, Inc. (then Dice Holdings, Inc.) — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; unaudited. The company operated specialized online recruitment and professional-community websites across Tech & Clearance, Finance, and Energy, with smaller activities reported as Other. Comparisons below are with Q1 2012 unless noted.
Financial performance and liquidity
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Revenue | $50.4 million | $46.1 million; up 9.3% |
| Operating income and margin | $11.5 million; 22.7% | $13.9 million; 30.1% |
| Net income and margin | $7.1 million; 14.0% | $8.6 million; 18.7% |
| Diluted EPS | $0.12 | $0.13 |
| Operating cash flow | $21.9 million | $23.4 million |
| Capital expenditures | $3.0 million | $1.4 million |
| Free cash flow, company-defined | $19.0 million | $21.9 million |
| Adjusted EBITDA, company-defined | $16.9 million | $18.5 million |
Revenue less cost of revenue was $45.3 million, or 89.9% of revenue, versus $43.0 million, or 93.2%, in Q1 2012. Operating expenses rose 20.9% to $39.0 million, led by higher product development, general and administrative, and cost-of-revenue expenses. The effective tax rate was 36.2%, compared with 36.6%.
Revenue by segment: Tech & Clearance $35.8 million, up 15.3%; Finance $8.6 million, down 13.9%; Energy $5.0 million, up 24.3%; Other $1.0 million, down 2.9%. The U.S. generated $41.0 million of revenue; non-U.S. revenue was $9.5 million, about 19% of total.
Balance sheet at March 31, 2013: Cash and cash equivalents were $43.9 million, with $1.7 million of investments; total current assets were $77.6 million and current liabilities $101.9 million. Long-term debt was $34.0 million, down from $46.0 million at December 31, 2012. The $155.0 million revolving facility had $121.0 million available; it matures in June 2017. Deferred revenue was $77.2 million, up from $69.4 million at year-end. Total assets were $350.8 million and stockholders’ equity $193.0 million.
Cash increased by $3.9 million during the quarter. Financing used $14.9 million, including $12.0 million of debt repayments and $5.1 million for share repurchases, partly offset by option-exercise proceeds. The company reported covenant compliance and said available cash, operating cash flow, and borrowing capacity should meet anticipated needs for at least 12 months. About $31.8 million of cash was held outside the U.S. and described as indefinitely reinvested.
Material changes and management commentary
- Revenue growth included $4.1 million attributed to the acquired Slashdot Media business. Management also cited approximately 4% growth in average monthly revenue per recruitment-package customer and record revenue per customer on Dice.com annual contracts.
- Finance remained weak amid lower recruiting activity associated with the global slowdown, European debt crisis, and U.K. recession. Revenue declined in Continental Europe, the U.K., and Asia Pacific; North America grew 2% in originating currency.
- Energy revenue improved with greater career-center usage and advertising. Tech & Clearance also benefited from Slashdot Media, while the company reduced some third-party Dice.com marketing spend.
- Operating income fell 17.6%, as higher operating costs—particularly from recent acquisitions, product development investment, and personnel—more than offset revenue growth and lower amortization. Slashdot Media contributed $4.1 million of Q1 revenue and an operating loss of $1.1 million.
- Q1 foreign-currency translation losses were $4.8 million, reducing comprehensive income to $2.3 million despite $7.1 million of net income. Foreign-currency translation had reduced equity by $14.1 million at quarter-end.
Outlook, risks, and contingencies
No specific revenue or earnings guidance was provided. Management noted tougher conditions in Finance and less urgent recruiting in technology, and warned that continued recruitment slowdowns could hurt revenue and results. It also described the typical lag between economic improvement, customer purchasing, and recognized revenue. Management’s liquidity assessment was positive, subject to risks including weaker demand, lender availability, and the ability to refinance debt or fund acquisitions.
Other disclosed risks include intense competition, changes in recruiting and career-service business models, customer and professional-user retention, acquisition integration, foreign-exchange exposure, and debt covenant restrictions. The company did not hedge currency risk; a 1% decline in pound sterling exchange rates versus the U.S. dollar was estimated to reduce Q1 revenue by about $70,000. A 1% interest-rate increase was estimated to add about $255,000 to interest expense for the remainder of 2013 on current borrowings.
WorkDigital acquisition-related contingent payments could total $10.0 million in 2013–2014, conditional on product delivery and milestones; the recorded contingent-consideration liability was $9.8 million. Operating lease commitments totaled $15.0 million. The company reported no pending material legal proceedings and said it was not aware of material changes to previously disclosed risk factors. It recorded $2.3 million of unrecognized tax benefits and said up to $304,000 might be recognized within 12 months due to statute-of-limitations lapses.
Most important facts for investors to verify
- Whether Finance-segment weakness persists and whether Tech & Clearance and Energy growth can offset it.
- How much of reported growth reflects acquired businesses versus underlying customer demand, and whether recent acquisitions improve profitability.
- Whether elevated product-development and other operating costs translate into sustainable growth or continue to pressure margins.
- Cash generation, capital spending, share repurchases, debt repayments, and compliance with revolving-credit covenants.
- WorkDigital milestone payments, acquisition integration, and the carrying values of goodwill and acquired intangible assets.
- Foreign-exchange movements, tax exposures, and any changes to the company’s stated liquidity outlook.