Business context and reporting period
Dice Holdings, Inc. (the filing registrant; identified in the request as DHI Group, Inc.) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2013. It operates specialized online recruiting and professional-community businesses across Tech & Clearance, Finance, Energy, and Other.
Key financial metrics
Amounts below are in millions of dollars except per-share data and percentages. Comparisons are with the corresponding 2012 periods.
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $52.0 | $48.5 | $102.4 | $94.6 |
| Operating income | $12.7 | $15.7 | $24.2 | $29.6 |
| Net income | $8.0 | $9.5 | $15.0 | $18.1 |
| Diluted EPS | $0.13 | $0.14 | $0.25 | $0.27 |
| Operating margin | 24.4% | 32.4% | 23.6% | 31.3% |
| Net margin | 15.3% | 19.5% | 14.7% | 19.1% |
Margins are calculated from reported revenue and income. Cost of revenue rose to $5.6 million in Q2 from $3.8 million, and to $10.8 million for the half from $7.0 million. Accordingly, gross margin, calculated as revenue less cost of revenue, was about 89.2% in Q2 and 89.5% for the half, versus 92.1% and 92.7%, respectively.
- Cash flow: Six-month operating cash flow was $34.7 million, compared with $34.2 million. Capital expenditures were $5.7 million versus $3.1 million; company-defined free cash flow was $28.9 million versus $31.1 million.
- Liquidity and debt: June 30 cash and cash equivalents were $40.6 million; no investments were held. Long-term debt was $26.0 million, down from $46.0 million at year-end 2012. The $155 million revolving facility had $129 million available; the company reported covenant compliance.
- Deferred revenue: $73.2 million at June 30, up from $69.4 million at December 31, 2012.
- Other balance-sheet items: Total assets were $340.0 million and stockholders’ equity was $195.3 million. Accumulated other comprehensive loss increased to $14.4 million, primarily reflecting foreign-currency translation.
Material changes versus prior comparable periods
- Revenue grew 7.3% in Q2 and 8.3% for the first half, but operating income fell 19.0% and 18.3%, respectively, as operating costs increased faster than revenue. Adjusted EBITDA, a non-GAAP measure, declined to $35.2 million for the half from $38.7 million.
- Tech & Clearance revenue increased 12.5% in Q2 and 13.9% for the half; Slashdot Media contributed $4.1 million and $8.2 million, respectively. Dice.com revenue was flat in Q2; for the half it increased $624,000. Recruitment-package customers at Dice.com edged up to approximately 8,650 from 8,600, and average monthly revenue per customer rose about 3%.
- Finance revenue declined 10.6% in Q2 and 12.3% for the half, attributed to weaker recruiting activity amid economic weakness, including in Europe and the UK. Energy revenue increased 12.8% and 17.8%, respectively, supported by greater career-center and advertising usage.
- Product development expense rose 62.5% in Q2 and 67.1% for the half, reflecting acquisition costs, added personnel, and investment in product development and an integrated enterprise platform. General and administrative expense rose 20.1% and 26.8%, including higher stock-based compensation.
- Interest expense declined year over year, in part because the 2012 comparison included a $765,000 write-off of deferred financing costs. Basic and diluted weighted-average shares were lower than in 2012, while the company continued repurchases.
Outlook, management commentary, risks and unusual items
- Outlook: Management said available cash, operating cash generation, and borrowing capacity were expected to cover anticipated needs for at least the next 12 months. The filing gives no specific revenue or earnings guidance. Management cautioned that operating results for the first half are not necessarily indicative of full-year results.
- Subsequent acquisition: On July 20, 2013, the company acquired UK-based The IT Job Board for £8.0 million ($12.2 million), net of cash acquired, plus up to £3.0 million ($4.6 million) in contingent payments. It borrowed $15.0 million under the credit facility to fund the acquisition.
- Leadership change: Michael Durney was announced to succeed Scot Melland as President and CEO effective September 30, 2013; Melland was to remain a director.
- Acquisition-related items: Slashdot Media generated $4.1 million of Q2 revenue and an operating loss of $315,000; for the half it generated $8.2 million of revenue and a $1.4 million operating loss. WorkDigital contingent consideration was recorded at $9.9 million; the company expected $10.0 million of deferred payments over 2013–2014 based on product delivery and milestones.
- Capital allocation: Q2 repurchases totaled 920,700 shares for approximately $8.1 million, at an average $8.85 per share. Approximately $41.9 million remained under the $50 million authorization at quarter-end.
- Key risks: Management cited competition, recruiting-market cyclicality and economic weakness, customer retention and professional-user engagement, acquisition integration, foreign exchange, and access to or refinancing of debt. About 19% of first-half revenue was earned outside the U.S.; the company did not hedge currency risk. A 1% adverse pound sterling/U.S. dollar movement would have reduced first-half revenue by approximately $147,000. A 1% rise in interest rates was estimated to increase interest expense by about $130,000 for the remainder of 2013 on then-current borrowings.
- Contingencies and controls: Management said ordinary-course claims and litigation were not expected to materially affect financial condition, operations, or liquidity; no pending material legal proceeding was reported. The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether the revenue gains, particularly in Tech & Clearance, can persist after separating acquisition contributions from underlying business trends.
- Whether Finance recruiting demand stabilizes and whether rising product-development and operating costs translate into future growth or improved margins.
- The acquired IT Job Board’s contribution, contingent purchase payments, and the resulting increase in borrowings after June 30.
- Cash generation after capital expenditures, share repurchases, acquisition spending, and debt service; also confirm covenant headroom and the terms of the credit facility.
- Exposure to foreign exchange and the assumptions underlying acquisition-related contingent liabilities and goodwill valuations.