DHI Group, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Dollar amounts are in millions unless stated otherwise. DHI operates a single Tech-focused segment through Dice, ClearanceJobs and eFinancialCareers.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $33.3 | $37.2 | $103.7 | $111.7 |
| Operating income (loss) | $(28.6) | $5.3 | $(31.4) | $12.6 |
| Net income (loss) | $(27.3) | $4.4 | $(32.0) | $9.0 |
| Diluted EPS | $(0.57) | $0.08 | $(0.66) | $0.18 |
| Operating margin | (85.9)% | 14.2% | (30.3)% | 11.3% |
- Revenue by brand: Q3 Dice $19.8 (down 13%), ClearanceJobs $7.3 (up 16%) and eFinancialCareers $6.1 (down 23%). For the first nine months, Dice revenue was $62.8 (down 9%), ClearanceJobs $21.3 (up 18%) and eFinancialCareers $19.5 (down 19%).
- Impairments and unusual items: Q3 included $8.0 of Dice trademark impairment and $23.6 of goodwill impairment, totaling $31.6. Nine-month impairment charges also included $7.2 of Dice trademark impairment in Q1 and $2.0 related to an equity investment, for total impairment charges of $40.8. The Q3 loss was primarily driven by the $31.6 of goodwill and intangible-asset impairments.
- Cash flow: Nine-month operating cash flow was $14.4, down from $19.0. Investing used $12.3 versus $7.7; financing provided $19.3 versus $13.1 used in 2019. Cash increased to $26.8 from $5.4 at year-end 2019.
- Adjusted EBITDA: Nine-month non-GAAP Adjusted EBITDA was $22.9, down from $26.3; margin was 22%, versus 24%. The company cautions that this measure is not a substitute for GAAP results or cash-flow analysis.
- Debt and liquidity: Revolver borrowings were $37.0 gross ($36.5 net of financing costs), up from $10.0 at year-end 2019; cash was $26.8. The $90.0 facility had $53.0 available, subject to limits and covenants, and matures in November 2023. The company reported compliance with financial covenants and no scheduled principal payments before maturity.
- Other balance-sheet indicators: Deferred revenue was $41.9 and backlog $64.6, down from $73.8 at September 2019. Total assets were $253.1 and stockholders’ equity $125.1 at September 30, 2020.
Material changes versus the prior comparable period
- Revenue declined 11% in Q3 and 7% for the first nine months, primarily reflecting lower recruitment activity and renewals amid COVID-19. Dice and eFinancialCareers fell; ClearanceJobs grew on demand for cleared professionals and product enhancements.
- Q3 operating results swung from profit to a substantial loss, largely due to impairment charges. Nine-month operating results also reflected $2.0 of equity-investment impairment; 2019 included $1.7 of disposition-related costs and a $0.5 loss on sale of a business.
- Operating cash flow decreased by $4.5, with management citing lower customer billings, partly offset by cost savings. Investing outflows increased, including higher capitalized software development spending.
- Revenue from U.S. Dice recruitment-package customers was affected by a lower customer count: approximately 5,300 at quarter-end versus 6,100 a year earlier. Average monthly revenue per U.S. customer was $1,122 in Q3 2020 versus $1,131.
- Debt increased as the company drew on its revolving facility for liquidity protection during the pandemic. Nine-month repurchases under the plan totaled $5.9; $3.6 remained authorized at quarter-end.
Outlook, risks and contingencies
- No formal numerical earnings or revenue guidance is provided. Management expected COVID-19 to continue negatively affecting financial performance in the coming months, while stating it did not then anticipate a significant long-term impact; it emphasized that the situation remained uncertain and rapidly changing.
- Goodwill and Dice brand valuations depend on projected revenue, cash flows, discount rates and other assumptions. The company warned that missed projections, further market deterioration, COVID-19 uncertainty, competition or market-share changes could lead to additional impairment. At September 30, the Tech-focused reporting unit’s goodwill fair value was impaired; the March analysis had shown fair value less than 1% above carrying value.
- Liquidity risks include weaker demand or customer payment capacity, covenant or borrowing limitations, lender availability and potential inability to refinance. Management believed cash, operating cash generation and available credit would cover anticipated needs for at least 12 months.
- Other cited risks include recruiting-market cyclicality, competition, product execution, Brexit and Hong Kong-related uncertainty, unhedged foreign-currency exposure, and the transition away from LIBOR. A 1% interest-rate increase was estimated to raise 2020 interest expense by less than $0.1.
- The company reported $1.8 of unrecognized tax benefits and said up to $0.5 could be recognized within 12 months. It stated other ordinary-course legal matters were not expected to materially affect financial condition, operations or liquidity. The previously recorded FCRA class-action settlement was paid in 2019 and final judgment was entered in July 2020.
- Disclosure controls were assessed as effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether customer demand, Dice renewals and total backlog stabilize or continue to decline, and whether ClearanceJobs growth persists.
- Whether management’s revenue and cash-flow assumptions supporting the Dice trademark and goodwill valuations are achieved, and whether further impairment is recorded.
- Actual cash generation, capitalized software spending, and the effect of deferred-revenue and backlog trends on future revenue.
- Revolver availability and covenant headroom as Adjusted EBITDA and operating conditions change; confirm the impact of debt costs and the LIBOR transition.
- How COVID-19, Brexit, Hong Kong-related uncertainty and foreign-exchange movements affect eFinancialCareers and consolidated results.