DHI Group, Inc. (then Dice Holdings, Inc.) — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; the filing was signed February 14, 2014. The company operated specialized online recruiting and professional-community businesses across technology and security clearance, finance, energy, healthcare, hospitality, and technology media.
Financial results and liquidity
| Metric | FY 2013 | FY 2012 | Change |
|---|---|---|---|
| Revenue | $213.5 million | $195.4 million | Up 9.3% |
| Operating income | $29.2 million | $58.9 million | Down 50.4% |
| Operating margin | 13.7% | 30.1% | Down 16.4 percentage points |
| Net income | $16.2 million | $38.1 million | Down 57.3% |
| Diluted EPS | $0.27 | $0.59 | Down 54.2% |
| Operating cash flow | $49.4 million | $54.7 million | Down $5.3 million |
| Free cash flow (non-GAAP) | $38.8 million | $48.8 million | Down $9.9 million |
| Adjusted EBITDA (non-GAAP) | $72.6 million | $77.4 million | Down 6.2% |
FY 2013 cost of revenue was 11.0% of revenue (8.0% in 2012); product development was 10.5% (8.3%); sales and marketing was 32.2% (33.3%); and general and administrative expense was 16.9% (13.9%). Net margin was 7.6%, versus 19.5%.
Fourth quarter: Revenue was $58.4 million, compared with $52.7 million in Q4 2012. The company reported an operating loss of $5.6 million and net loss of $5.9 million, versus operating income of $14.6 million and net income of $9.0 million a year earlier. Q4 2013 included $15.9 million of goodwill, intangible-asset, and fixed-asset impairment charges.
Year-end liquidity and debt: Cash and cash equivalents were $39.4 million, down from $40.0 million; working capital was negative $29.0 million, reflecting substantial deferred revenue. Total debt was $119.0 million ($50.0 million term loan and $69.0 million revolver), with $131.0 million of revolving capacity available. The company reported compliance with its credit covenants: leverage ratio 1.56x against a maximum 3.0x, and interest coverage 26.2x against a minimum 3.5x. Management said available cash, operating cash flow, and borrowing capacity should meet anticipated needs for at least 12 months.
Material changes and operating developments
- Revenue growth was led by Energy (+18.3%), with Tech & Clearance up 2.1%. Finance revenue fell 8.8% amid weaker recruiting activity; company commentary attributed declines to slow hiring, the global slowdown, and UK and European conditions.
- Acquisitions expanded the portfolio: The IT Job Board was acquired in July and onTargetjobs in November 2013. The two deals used $58.6 million of cash, net of acquired cash, and added technology, healthcare, and hospitality businesses. OnTargetjobs contributed $4.5 million of reported 2013 revenue and an operating loss of $2.9 million, including acquired-intangible amortization.
- Impairments totaling $15.9 million were recorded in Q4: $7.7 million of goodwill and $8.2 million of intangible and fixed assets. Slashdot Media goodwill and intangible assets were written off after weaker performance and outlook; Health Callings goodwill and website development costs were impaired as the business was to be combined with HEALTHeCAREERS.
- Goodwill was $230.2 million, approximately 55% of total assets. Total assets rose to $420.6 million from $354.2 million, while stockholders’ equity declined to $167.8 million from $190.6 million.
- The company repurchased 6.6 million shares for $55.4 million during 2013. It ended the year with 54.6 million shares outstanding, compared with 59.0 million a year earlier.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance is provided. Management expected 2014 capital expenditures of approximately $9–$11 million and planned to fund them from operating cash flow. It intended to combine Health Callings and HEALTHeCAREERS under the HEALTHeCAREERS brand in 2014.
- Management described a less urgent recruiting environment for technology professionals and continued weakness in Finance. Revenue recognition over customer contracts, typically one to 12 months, can delay the impact of declining bookings on reported results.
- Key risks include economic and hiring cyclicality, competition from job boards, aggregators and social networks, customer retention and user engagement, technology and cybersecurity disruptions, privacy and regulatory exposure, foreign-exchange movements, acquisition integration, and substantial goodwill impairment risk.
- Foreign operations generated about 21% of revenue; the company did not hedge currency exposure. A 1% decline in the pound sterling against the U.S. dollar would have reduced 2013 revenue by approximately $330,000, according to the filing. A 1% interest-rate increase was estimated to add about $1.2 million to 2014 interest expense on then-current borrowings.
- Acquisition-related future payments included $5.0 million for WorkDigital expected in October 2014, subject to milestones, and up to $4.0 million for The IT Job Board by January 2015, subject to financial measures. The filing also disclosed $2.6 million in unrecognized tax benefits; timing and ultimate settlement were uncertain.
- The financial statements received an unqualified audit opinion. Management and the auditor reported effective internal control over financial reporting, but the assessment excluded onTargetjobs, acquired in November 2013 and representing about 15% of year-end assets and 2% of 2013 revenue.
Important facts for investors to verify
- Whether acquired businesses deliver growth and profitability sufficient to offset weak Finance performance and higher operating costs.
- Whether the Q4 impairments signal further deterioration in Slashdot Media or other acquired assets, and the assumptions behind goodwill valuations.
- Current debt balances, revolver availability, covenant headroom, interest-rate exposure, and acquisition-related payment obligations.
- Cash conversion and the trend in operating cash flow and free cash flow, including the effects of taxes, deferred revenue, acquisitions, and repurchases.
- Post-acquisition controls and integration progress at onTargetjobs, along with customer, traffic, and recruiting-package trends across the portfolio.