DHI Group, Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing also reports fourth-quarter results; it is an annual report, not a standalone quarterly filing. DHI operates Dice, ClearanceJobs and eFinancialCareers, specializing in online recruitment and career services for technology, security-cleared and financial-services professionals.
Financial performance and liquidity
| Metric | FY 2020 | FY 2019 | Change |
|---|---|---|---|
| Revenue | $136.9 million | $149.4 million | Down 8.4% |
| Operating income (loss) | ($29.6 million) | $17.0 million | Down $46.6 million |
| Net income (loss) | ($30.0 million) | $12.6 million | Down $42.6 million |
| Diluted earnings (loss) per share | ($0.62) | $0.24 | — |
| Operating cash flow | $18.7 million | $22.9 million | Down 18% |
| Adjusted EBITDA (non-GAAP) | $29.9 million | $34.9 million | Down 14% |
| Adjusted EBITDA margin (non-GAAP) | 22% | 23% | Down 1 percentage point |
FY 2020 operating loss included $38.8 million of goodwill and intangible-asset impairments and a $2.0 million impairment of an equity investment. Adjusted EBITDA excludes these impairment charges and other specified items; it is a non-GAAP measure and is not a substitute for GAAP results or cash flow.
Fourth quarter: Revenue was $33.2 million, versus $37.7 million in Q4 2019. Operating income was $1.8 million, versus $4.4 million, and net income was $2.0 million, versus $3.5 million.
Cash, debt and liquidity: Cash and equivalents were $7.6 million at year-end, compared with $5.4 million a year earlier. The company had $20.0 million drawn under its $90.0 million revolving credit facility, with $70.0 million of stated undrawn capacity subject to borrowing limits and covenants. The facility matures in November 2023; DHI reported compliance with its financial covenants. Current assets were $33.5 million and current liabilities $65.4 million. Capital expenditures were $16.1 million; management estimated 2021 capital expenditures of $16–$18 million.
Deferred revenue was $43.5 million and total backlog was $76.3 million at December 31, 2020, down 16% and 14%, respectively, from year-end 2019. DHI repurchased $8.4 million of shares during 2020; it had no cash dividend policy for the foreseeable future.
Material changes versus the prior year
- Revenue declined $12.5 million. Dice revenue fell 11.2% to $82.2 million, eFinancialCareers fell 19.9% to $25.7 million, and ClearanceJobs rose 17.1% to $29.0 million.
- Management attributed the Dice and eFinancialCareers declines to pandemic-related hiring and renewal weakness; eFinancialCareers was also affected by Brexit uncertainty and political unrest in Hong Kong. ClearanceJobs benefited from demand for security-cleared professionals and product enhancements.
- Operating results swung to a loss largely because of the $38.8 million non-cash impairment charges. Excluding those charges, DHI reported Adjusted EBITDA of $29.9 million, still below 2019.
- Operating cash flow declined by $4.2 million, which management primarily attributed to lower customer billings, partly offset by cost savings. Investing cash use rose to $15.9 million, including $16.1 million of fixed-asset purchases and capitalized development costs.
- Year-end long-term debt, net of financing costs, increased to $19.6 million from $9.4 million. Goodwill declined to $133.4 million from $156.1 million, and acquired intangible assets to $23.8 million from $39.0 million, primarily following impairments.
Outlook, risks and unusual items
- Outlook: DHI provided no specific revenue or earnings guidance. It expected COVID-19 to continue weighing on near-term performance, while stating it did not anticipate a significant long-term impact based on information then available. Management said Dice exceeded fourth-quarter booking targets, indicating a pivot toward growth in 2021.
- Investment and strategy: The company continued developing career-marketplace features and expanding sales capabilities, including adding sales representatives. It estimated 2021 capital expenditures of $16–$18 million, mainly for product development.
- Impairment sensitivity: Goodwill and Dice brand valuations depend on forecast revenue and cash flows, discount rates and other assumptions. Management noted further impairment could result if projections are not achieved or market conditions weaken.
- Key operating risks: Hiring-market cyclicality, customer renewals and recruitment-package demand, competition, ability to attract qualified users, and success executing the tech-focused strategy. Backlog declined amid COVID-19, weaker Dice renewals and eFinancialCareers uncertainty.
- Other risks: Data privacy and cybersecurity, dependence on third-party cloud hosting, foreign-exchange exposure, Brexit-related uncertainty, tax assessments and credit-agreement covenants. DHI did not hedge currency risk; a 1% increase in interest rates was estimated to add about $0.2 million to annual interest expense on current borrowings.
- Contingencies and controls: Management said it was not party to material unrecorded pending legal proceedings. The FCRA class-action settlement was paid in 2019 and final judgment entered in 2020. The auditor issued unqualified opinions on the financial statements and internal controls; management also concluded controls were effective.
Most important facts for investors to verify
- Whether Dice and eFinancialCareers renewals, bookings and revenue stabilize, and whether ClearanceJobs growth continues.
- How backlog and deferred revenue trend as customer contracts renew and are billed.
- Whether operating cash flow supports planned product investment and capital expenditures, and whether reported Adjusted EBITDA converts to cash after working-capital needs and capital spending.
- Available borrowing capacity under the leverage limits, covenant headroom and ability to service or refinance debt before the November 2023 maturity.
- Whether future operating performance supports the remaining $133.4 million of goodwill and $23.8 million of Dice brand assets without further impairment.
- The assumptions behind management’s pandemic outlook and the effects of continued repurchases on cash, debt and shares outstanding.