DHI GROUP, INC. quarterly report, Q2 FY2021

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DHI Group, Inc. — Q2 2021 Form 10-Q

Reporting period: Three and six months ended June 30, 2021. Amounts are in U.S. dollars; financial statement figures below are in millions unless noted.

Business context

DHI operates Dice and ClearanceJobs, U.S.-focused online recruiting marketplaces for technology and security-cleared professionals. On June 30, 2021, DHI transferred majority ownership and control of eFinancialCareers (eFC) to its management, retaining a 40% interest. eFC is reported as a discontinued operation for all periods presented; continuing-operation revenue therefore reflects Dice and ClearanceJobs.

Financial performance and liquidity

  • Q2 revenue: $28.7 million, up 4% year over year. Dice revenue was $20.6 million, essentially flat; ClearanceJobs revenue was $8.1 million, up 15%.
  • First-half revenue: $55.4 million, down 3%. Dice revenue declined 8% to $39.6 million; ClearanceJobs increased 13% to $15.8 million.
  • Q2 continuing operations: Operating income was $0.5 million, versus $1.7 million a year earlier; operating margin fell to 1.7% from 6.0%. Continuing-operations net loss was $0.2 million, compared with income of $1.2 million. Diluted EPS from continuing operations was approximately zero.
  • First-half continuing operations: Operating income was $0.3 million versus an operating loss of $4.9 million in 2020. Net income was $1.8 million versus a $6.4 million loss; diluted EPS was $0.04 versus $(0.13).
  • Discontinued operation and total results: The eFC transfer contributed a $30.2 million loss, including $28.1 million from reclassifying accumulated currency translation losses and $5.2 million from removing eFC net assets, partly offset by a $3.6 million retained equity investment and eFC earnings. Total net loss was $30.2 million for Q2 and $27.5 million for the first half.
  • Cash flow and adjusted EBITDA: First-half operating cash flow was $19.3 million, compared with $10.0 million in 2020; investing cash outflow was $9.8 million and financing cash outflow was $9.3 million. Management-reported adjusted EBITDA was $12.7 million, with a 23% margin, versus $11.7 million and 20% a year earlier. Adjusted EBITDA is a non-GAAP measure.
  • Balance sheet and liquidity: June 30 cash was $7.9 million, up from $4.5 million at year-end 2020. Revolver borrowings were $16.0 million (carrying value of debt, net of financing costs, was $15.7 million), with $74.0 million of stated borrowing capacity subject to facility limitations. DHI reported compliance with financial covenants. Management said available cash, operating cash flow and borrowing capacity should cover anticipated needs for at least 12 months.
  • Other metrics: Backlog was $75.1 million, up from $59.4 million a year earlier. Deferred revenue was $43.2 million. DHI repurchased 1.12 million shares for $3.3 million in the first half and had $17.8 million remaining under its current authorization.

Material changes versus prior periods

  • Q2 revenue improved, primarily from ClearanceJobs growth, but operating income declined as depreciation rose 57% to $4.0 million, largely reflecting internal development costs placed in service in late 2020.
  • First-half revenue remained below 2020 as Dice renewals were affected by pandemic-related weakness; ClearanceJobs growth partly offset the decline. The year-over-year operating-income improvement also reflects the $7.2 million Dice trademark impairment recorded in first-half 2020, not just current-period performance.
  • First-half cash from operations increased by $9.3 million, which management attributed primarily to stronger customer billings and collections. Cash used in financing shifted from a $20.4 million inflow in first-half 2020 to a $9.3 million outflow in 2021, including net debt repayments and share repurchases.
  • The eFC transfer materially changed the business mix and eliminated consolidated foreign operations, while leaving DHI with a 40% equity-method interest. The filing says historical cash-flow and comprehensive-income statements were not revised to reflect the transfer.

Outlook, risks and unusual items

  • No specific revenue or earnings guidance is provided. Management expects COVID-19 may continue to affect performance in the coming months, while stating it did not anticipate a significant long-term impact based on information then available; the ultimate effect remained uncertain.
  • Key business risks include recruiting-market cyclicality, competition, customer retention and renewal rates, attracting qualified professionals, product development and the ongoing effects of COVID-19. Management also identifies potential future goodwill or trademark impairment if projections are not achieved or market conditions weaken.
  • Debt bears variable interest. DHI estimated that a 1 percentage-point rate increase would add about $0.2 million of 2021 interest expense on current borrowings. The credit facility matures in November 2023; LIBOR transition was an identified uncertainty.
  • The filing identifies ordinary-course legal and tax matters and says management does not expect their resolution to materially affect financial condition, operations or liquidity. No material pending legal proceedings were reported. Disclosure controls were deemed effective, with no material quarterly change in internal control over financial reporting.

Important facts for investors to verify

  • How much of continuing-revenue growth is sustained by ClearanceJobs, and whether Dice customer renewals and average revenue per customer recover.
  • Whether backlog converts to revenue as expected and whether the improvement in operating cash flow is repeatable.
  • The valuation and future performance of DHI’s retained 40% eFC interest, including the assumptions underlying its $3.6 million recorded value.
  • Debt covenant headroom, variable-rate exposure and refinancing plans ahead of the November 2023 maturity.
  • Whether higher depreciation, market uncertainty or revised projections could pressure margins or trigger future impairment charges.