DHI Group, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Dollar amounts below are in millions unless stated otherwise. DHI operates online career marketplaces through Dice, ClearanceJobs and eFinancialCareers, serving technology, security-cleared and financial-services professionals and employers.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $33.8 | $37.4 | $70.4 | $74.5 |
| Operating income (loss) | $2.5 | $3.8 | $(2.8) | $7.4 |
| Operating margin | 7.3% | 10.1% | (4.0)% | 9.9% |
| Net income (loss) | $1.9 | $3.1 | $(4.7) | $4.6 |
| Diluted EPS | $0.04 | $0.06 | $(0.10) | $0.09 |
| Operating cash flow | Not separately presented | Not separately presented | $10.0 | $14.4 |
| Adjusted EBITDA and margin | Not clearly provided for Q2 | Not clearly provided for Q2 | $15.3; 22% | $17.6; 24% |
Q2 cost of revenue was $4.2 million, or 12.3% of revenue, versus $3.9 million, or 10.5%, a year earlier. For the first half, cost of revenue was $8.3 million, or 11.8%, versus $7.7 million, or 10.4%.
At June 30, cash was $27.5 million, compared with $5.4 million at year-end 2019. Current assets were $51.0 million and current liabilities $65.3 million. The revolving facility had $37.0 million drawn, $53.0 million of stated availability, and matures in November 2023; the company reported compliance with its financial covenants. The filing says existing cash, operating cash flow and available borrowing capacity are expected to cover anticipated needs for at least 12 months.
First-half investing cash outflow was $8.2 million, including $8.4 million of fixed-asset purchases. Financing cash inflow was $20.4 million, including $27.0 million of net debt proceeds, partly offset by $6.6 million for share repurchases and withholding-related treasury stock purchases.
Material changes versus prior periods
- Q2 revenue fell 10% year over year. Dice revenue declined 12% to $20.5 million; eFinancialCareers fell 24% to $6.2 million; ClearanceJobs grew 18% to $7.1 million.
- For the first half, revenue fell 5%. Dice declined 7% to $43.0 million and eFinancialCareers declined 18% to $13.4 million, while ClearanceJobs increased 19% to $14.0 million.
- The first-half operating loss included a $7.2 million impairment of the Dice trademark and a $2.0 million impairment of an equity investment. No additional Dice trademark impairment was recorded in Q2.
- First-half operating cash flow decreased by $4.4 million, which management primarily attributed to lower customer billings. Backlog was $71.1 million, down $9.1 million from June 30, 2019 and $17.6 million from year-end 2019.
- Borrowings rose to $37.0 million from $10.0 million at December 31, 2019. The company said it drew on the facility in Q1 as a liquidity precaution during the pandemic. It repurchased 2.0 million shares for $5.1 million in the first half.
Management commentary, outlook and risks
Management attributed weaker recruitment activity and lower revenue and operating cash flow to COVID-19 and employers slowing hiring. It expected the pandemic to continue to weigh on financial performance in coming months, while stating that, based on information then available, it did not anticipate a significant long-term impact. The filing emphasizes that the outlook was uncertain and the ultimate effects could not be predicted; it provides no quantitative earnings or revenue guidance.
Management cited lower Dice renewal rates and customer counts, COVID-related pressure across brands, Brexit uncertainty and political unrest in Hong Kong affecting eFinancialCareers. ClearanceJobs benefited from demand for security-cleared professionals and product releases. The company also described ongoing product development and new feature launches.
Impairment risk remains notable: at March 31, the estimated fair value of the Tech-focused reporting unit exceeded carrying value by less than 1%. Management warned that weaker future results, higher discount rates, COVID-19 or adverse market conditions could lead to further goodwill or intangible-asset impairment. Goodwill was $152.1 million at June 30.
Other risks include recruiting-market cyclicality, customer ability to pay, competition, execution of the tech-focused strategy, foreign-exchange exposure (not hedged), variable-rate debt and potential LIBOR transition. The company reported no material off-balance-sheet arrangements. The FCRA class-action settlement received final judgment on July 24, 2020; management said other ordinary-course legal matters were not expected to have a material effect. Approximately $1.8 million of unrecognized tax benefits was recorded, with up to $0.5 million possibly recognized within 12 months.
Important facts for investors to verify
- Whether hiring conditions, Dice customer renewals and backlog stabilize or continue to weaken, and how this affects revenue and cash generation.
- Whether the company can meet its projections supporting the Dice trademark and Tech-focused goodwill valuations, particularly given the narrow goodwill valuation cushion reported at March 31.
- Debt availability and covenant headroom under the revolving facility, including the effects of further borrowing, lower Adjusted EBITDA or any change in interest rates.
- The composition and sustainability of Adjusted EBITDA, a non-GAAP measure, and the reported first-half 22% margin amid GAAP operating and net losses.
- Whether share repurchases continue while debt is outstanding and liquidity remains exposed to pandemic-related customer demand and collections.