DHI Group, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; compared with Q1 2019. DHI operates online career marketplaces through Dice, ClearanceJobs, and eFinancialCareers. Results were affected by COVID-19 and related impairment charges.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $36.6 million | $37.1 million | Down 1% |
| Operating income (loss) | $(5.3) million | $3.6 million | Down $8.8 million |
| Operating margin | (14.3)% | 9.7% | — |
| Net income (loss) | $(6.6) million | $1.6 million | — |
| Diluted EPS | $(0.13) | $0.03 | — |
| Adjusted EBITDA (non-GAAP) | $7.5 million | $8.5 million | Down 11% |
| Adjusted EBITDA margin (non-GAAP) | 21% | 23% | Down 2 percentage points |
| Operating cash flow | $2.9 million | $3.2 million | Down $0.3 million |
Revenue by brand: Dice $22.5 million, down 3%; eFinancialCareers $7.2 million, down 12%; ClearanceJobs $6.9 million, up 19%. The filing attributes ClearanceJobs growth to continued demand for cleared professionals and product improvements. eFinancialCareers was affected by COVID-19, Brexit uncertainty, Hong Kong unrest, and foreign exchange; Dice revenue declined as renewal rates fell.
Operating expenses were $41.9 million, including a $7.2 million Dice trademark impairment and $2.0 million impairment of an equity investment. Excluding these significant charges, the filing reports Adjusted EBITDA of $7.5 million; this non-GAAP measure is not a substitute for GAAP results.
Cash, debt, and liquidity
- Cash was $27.8 million at March 31, 2020, up from $5.4 million at year-end. Operating cash flow was $2.9 million; investing activities used $4.3 million, primarily for fixed assets and capitalized software development.
- Gross revolving-credit borrowings were $37.0 million, versus $10.0 million at December 31, 2019; $53.0 million remained available under the $90 million facility, subject to limitations. The facility matures in November 2023. The company said it borrowed for liquidity protection amid COVID-19.
- Current assets were $56.7 million and current liabilities $71.0 million. Deferred revenue was $55.5 million; backlog, including contractual commitments not invoiced, was $80.4 million, down from $88.7 million at year-end and approximately flat year over year.
- Management stated that cash, operating cash generation, and available borrowing capacity were expected to cover anticipated needs for at least 12 months. The company was in compliance with credit-agreement financial covenants at quarter-end.
Material changes and unusual items
- The $7.2 million Dice brand impairment followed an interim review prompted by COVID-19 and weaker projected cash flows. The brand’s carrying value fell to $31.8 million.
- Goodwill was $152.3 million after a $3.8 million foreign-currency translation decrease. Interim testing found the Tech-focused reporting unit’s fair value less than 1% above carrying value, versus a 37% cushion in the October 2019 test; further impairment is reasonably possible if forecasts weaken or discount rates rise.
- The company wrote its $2.0 million investment in a tech skills-assessment company down to zero, citing cash burn, liquidity, capital-access and pandemic concerns.
- Foreign-currency translation reduced equity by $3.9 million during the quarter. Repurchases totaled $1.6 million. In May 2020, the board authorized a new repurchase program of up to $5 million through May 2021.
Outlook, commentary, and risks
DHI provided no specific consolidated revenue or earnings guidance. It said the full impact of COVID-19 was uncertain and could not be predicted confidently. Management’s impairment assumptions anticipated lower Dice revenue and cash flows in 2020, followed by growth approaching industry projections; failure to achieve those forecasts could result in further impairment. Management also cited competition, customer demand and ability to pay, recruitment-market cyclicality, product development, and foreign-exchange and Brexit uncertainty as risks. The company did not hedge currency exposure. A 1% increase in interest rates was estimated to raise 2020 interest expense by less than $0.4 million. Disclosure controls were judged effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether COVID-19-related customer demand, renewals, collections, and recruitment activity diverged from management’s assumptions.
- Whether the Dice trademark or Tech-focused reporting unit requires additional impairment, given the limited goodwill valuation cushion.
- Quarterly cash generation, borrowing levels, covenant headroom, and the availability of the remaining credit facility.
- Trends in brand-level revenue, backlog, deferred revenue, and customer renewals, especially at Dice and eFinancialCareers.
- Whether the new share-repurchase authorization proceeds and how repurchases affect liquidity during continued uncertainty.