DHI Group, Inc. (then Dice Holdings, Inc.) — Q2 2014 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2014. The company operates specialized recruiting and career websites across technology, finance, energy, healthcare, and hospitality markets. Unless otherwise noted, amounts below are in millions of dollars.
Financial results
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $66.5 | $52.0 | $127.2 | $102.4 |
| Operating income | $13.0 | $12.7 | $20.9 | $24.2 |
| Net income | $7.2 | $8.0 | $11.6 | $15.0 |
| Diluted EPS | $0.13 | $0.13 | $0.21 | $0.25 |
| Operating margin | 19.5% | 24.4% | 16.4% | 23.6% |
- Revenue rose 27.9% in Q2 and 24.2% in the first half. Acquisitions were a major contributor; the filing does not provide a single consolidated organic-growth measure.
- Net income declined 9.6% in Q2 and 22.9% for the first half. Operating income was nearly flat in Q2 but fell 13.6% for the first half, as higher costs from acquisitions and increased amortization outweighed revenue growth.
- Cost of revenue was $9.5 million in Q2 and $18.4 million in the first half, equal to 14.3% and 14.4% of revenue, respectively, versus 10.8% and 10.5% a year earlier. Amortization of acquired intangibles rose to $4.4 million in Q2 and $8.8 million in the first half.
- Adjusted EBITDA, a company-defined non-GAAP measure, increased to $41.8 million for the first half from $35.2 million. Free cash flow, defined as operating cash flow less fixed-asset purchases, was $28.4 million versus $28.9 million.
Cash, debt, and liquidity
- Cash and equivalents were $20.1 million at June 30, down from $39.4 million at year-end. Operating cash flow was $33.4 million versus $34.7 million in the first half of 2013.
- Investing cash outflow was $31.9 million, principally reflecting $27.0 million of acquisition payments; financing cash outflow was $18.8 million, including $18.5 million of share repurchases.
- Debt outstanding was $116.8 million, comprising $48.8 million of term loans and $68.0 million drawn on the revolver. The company had $132.0 million of additional revolving capacity; the facilities mature in October 2018. The filing states the company was in compliance with financial covenants.
- Management said cash, operating cash generation, and available borrowing capacity should cover anticipated requirements for at least 12 months. Approximately $16.1 million of cash was held outside the U.S. and described as indefinitely reinvested.
- Deferred revenue was $85.7 million, up from $77.4 million at December 31, 2013, indicating revenue contracted but not yet recognized.
Changes, acquisitions, and management commentary
- Dice.com revenue declined about $1.0 million in Q2 and $2.2 million in the first half. Its recruitment-package customer count fell from 8,650 to 8,000 year over year, while average monthly revenue per customer increased about 4% in Q2 and 3% for the first half.
- OilCareers, acquired in March for approximately $26.4 million including a working-capital settlement, contributed $2.0 million of Q2 Energy revenue and $2.3 million for the first half. Healthcare and Hospitality growth primarily reflected acquisitions completed in November 2013. The onTargetjobs business contributed $18.3 million of first-half revenue but recorded a $2.4 million operating loss, primarily due to acquired-intangible amortization.
- Finance recruitment activity improved particularly in Europe and Asia, but the company cited continued challenging conditions in finance and less urgent technology recruiting. It also noted that recruitment and advertising spending are cyclical and can be affected by economic conditions and customer demand.
- No specific forward financial guidance was provided. Management stated that operating results for the six-month period are not necessarily indicative of full-year results.
Risks, contingencies, and other notable items
- Foreign-currency revenue exposure increased: 28% of first-half revenue was earned outside the U.S., versus 19% a year earlier. The company did not hedge currency risk. A 1% decline in the pound sterling against the dollar would have reduced first-half revenue by approximately $226,000.
- A 1% increase in interest rates was estimated to raise interest expense by approximately $584,000 for the remainder of 2014. Debt covenants restrict certain payments and other actions; covenant compliance was reported at quarter-end.
- Expected acquisition-related payments included $5.0 million for WorkDigital in October 2014 and $4.0 million for The IT Job Board by January 2015, subject to specified milestones or financial measures. Recorded acquisition-related contingent consideration was $9.2 million.
- Management said ordinary-course legal matters were not expected to materially affect the company, and there were no material pending legal proceedings. The filing reported no material changes to previously disclosed risk factors.
- Disclosure controls were assessed as effective. OilCareers was excluded from the year-of-acquisition internal-control assessment; implementation of the global billing system remained ongoing.
Important facts for investors to verify
- How much of reported revenue growth reflects acquired businesses versus underlying organic growth, particularly in Healthcare, Hospitality, and Energy.
- Whether Dice.com customer losses and declining revenue stabilize, and whether increased revenue per customer can continue.
- Whether acquisitions achieve expected integration benefits and profitability as acquisition-related amortization and other costs continue.
- Debt repayment capacity, covenant headroom, variable-rate exposure, and the timing and conditions of contingent acquisition payments.
- The sustainability of operating cash flow and share repurchases given lower cash balances and continued acquisition or investment needs.