DHI Group Q1 2024 Earnings Call Transcript

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May 8, 2024

There are 6 speakers on the call.

Operator

Good day, and welcome to the DHI Group First Quarter 20 24 Financial Results Conference Call. All participants will be in listen only mode. Please note, today's event is being recorded. I would now like to turn the conference over to Todd Kehrli of MKR Investor Relations. Please go ahead.

Speaker 1

Thank you, operator. Good afternoon, and welcome to DHI Group's 2024 First Quarter Earnings Conference Call. With me on today's call are DHI's CEO, Art Zeile and CFO, Randy Levy. Before I turn the call over to Art, I'd like to cover a few quick items. This afternoon, DHI issued a press release announcing its 2024 Q1 financial results.

Speaker 1

The release is available on the company's website atdhigroupinc.com. This call is being rebroadcast live over the Internet for all interested parties and the webcast will be archived on the Investor Relations page of the company's website. I want to remind everyone that during today's call, management will make forward looking statements that involve risks and uncertainties. Please note that except for the historical information, statements on today's call may constitute forward looking statements within the meaning of the federal securities laws. These forward looking statements reflect DHI Management's current views concerning future events and financial performance and are subject to risks and uncertainties and actual results may differ materially from the outcomes contained in any forward looking statements.

Speaker 1

Factors that could cause these forward looking statements to differ from actual results include risks and uncertainties discussed in the company's periodic reports on Form 10 ks and 10 Q and other filings with the Securities and Exchange Commission. DHI undertakes no obligation to update or revise any forward looking statements. Lastly, during today's call, management will be referring to specific financial measures, including adjusted EBITDA, adjusted EBITDA margin and non GAAP earnings per share that are not prepared in accordance with U. S. GAAP.

Speaker 1

Information about and reconciliation of these non GAAP measures to the most directly GAAP measures are available in our earnings release, a copy of which you can find on our website at dhigroupinc.com in the Investor Relations section. With that, I'll now turn the call over to Art Zaitley, CEO of DHI Group.

Speaker 2

Thank you, Todd. Good afternoon, everyone, and welcome to our 2024 Q1 earnings conference call. We appreciate your time today as we discuss our financial performance and provide an update on our outlook. 1st, let's discuss the state of the tech labor market, which is one of the main growth drivers for our business. While we suffered from a slump in hiring demand last year, the 1st 3 months of 2024 have been more promising, with tech job postings increasing from a low point of 142,000 in December to 191,000 in March as reported by CompTIA.

Speaker 2

The pre pandemic average was 300,000 job postings per month in 2019. So we aren't back to normal yet, but we see small signs of improvement. We are also seeing an increase in the demand for AI skilled professionals as Corporate America starts to implement generative AI in their business models. 16% of all of our job postings in March contained AI related skills, which is a significant uptick year over year. We are also seeing that consulting companies like Deloitte, Accenture, IBM and others are hiring tech professionals at elevated rates, indicating that large firms are actively prototyping and piloting AI solutions.

Speaker 2

Long term occupational growth trend in the United States behind healthcare and is projected to grow twice as fast as the overall U. S. Workforce with the U. S. Becoming a more digital economy over time.

Speaker 2

As businesses accelerate their investment in technology initiatives, including the implementation of GenAI, they will need our subscription based offerings and proprietary search algorithms to find the perfect match for their job posting from our over 8,000,000 technologist profiles. Our clients have seen increased success in attracting and hiring top tech talent using our platform. One example is MC Dean, a leading provider for mission critical facilities who became a Dice client at the end of 2023. Within their 1st week of coming on board, they made a hire through the Dice platform. During their 60 day check-in, they told us that Dice has already paid for itself.

Speaker 2

Another example is Beacon Hill Staffing, one of the largest staffing and recruiting firms in the United States. In a recent call with our team, Beacon Hill told us that they keep track of the cost per candidate on an annual basis and Dice consistently delivers above the average return on investment. I'm also grateful to report that they told us that our support team is absolutely unequivocally the best. A final example is Montefiore, one of New York's premier academic health systems, who is using our employer branding solutions to attract tech talent in a very competitive environment. Now let me dig into our performance during the Q1 and what we see ahead for the remainder of 2024.

Speaker 2

In the Q1, our total revenue declined 7% year over year. Dice revenue decreased 14%, while CJA revenue increased 10%. The decrease in Dice revenue was due to lower previous quarter new business bookings and renewals and lower one time transactional revenue as a result of the difficult market environment. Excluding transactional revenue, our total recurring revenue declined 2% year over year. Looking at our bookings performance, while our total bookings were down 9% year over year in the Q1, approximately 50% of the Q1 renewal book takes place in the month of January, with a lot of the actual contracts signed in November December of 2023 before we started to see an improvement in the tech job market.

Speaker 2

Notably, we did see strong sequential improvements in transactional bookings in the Q1 for both Dice and CJ, which as we have said in the past, we view as a leading indicator of demand for our platforms. Dice secured several notable customers this quarter, including Coca Cola, First National Bank and the City of Kansas City, as we continue to focus on those industries and companies hiring tech professionals even in this weakened economic environment. The data continues to indicate that these industries include aerospace, business consulting, healthcare, financial services and education. ClearanceJobs bookings for the Q1 increased 5% year over year, which is below its trend line. We believe that booking activity was suppressed by the continuing threat of a potential government shutdown during the majority of the quarter.

Speaker 2

In March, the President signed into law the full fiscal year 2024 appropriations package. With the certainty of government funding in place, we expect to see our CJ bookings improve. Despite these headwinds, during the Q1 CJ secured several new customers, including Cushman and Wakefield, Rocket Lab and Ascendiant Incorporated. Moving on to account management, our Dice and CJ revenue renewal rates were 82% 98% respectively in the Q1. Retention rates for Dice and CJ were 100% and 115%, respectively.

Speaker 2

These are significant sequential improvements for both Dice and ClearanceJobs. During the Q1, we delivered a 24% adjusted EBITDA margin, which is up from 21% a year ago. Our operating cash flow was $2,100,000 for the quarter versus $0 in the year ago quarter. We continue to focus on operating our business efficiently as evidenced by our 10% reduction in total operating expenses year over year. Now let me quickly touch on what we're doing to drive increased adoption of our 2 brands.

Speaker 2

Dice announced a partnership with TopResume at the beginning of the quarter. Candidates can now send resumes from within their Dice profile to top resume for a free or a more advanced paid evaluation. Several tens of thousands of candidates have tried the evaluation since the launch of this service. Dice also announced the release of Discover Companies, a new experience on Dice that enables technologists to easily discover companies that align with their preferences. A technologist can now browse and view company profiles based on location, industry, size of the company, remote work policies and whether they are actively hiring.

Speaker 2

Dice also launched a new job alert service that displays job opportunities better tailored to our candidates experience and career aspirations. As a result of our many new candidate engagement features, total applications on the Dice platform were up 67% year over year in the Q1. And we are successfully delivering our target of over 10 applications per job posting for subscription customers. We also continue to deliver product innovation in clearance jobs with CJ Live going into production at the end of the quarter. CJ Live!

Speaker 2

Allows employers to produce and catalog streamed video content to better engage with their target candidates. We have already signed up over 100 CJ recruiters for this new service. At the end of the last year, we also released comprehensive subscription packages to combine unlimited job postings, a company page and selected job boosts for harder to fill positions. During the Q1, almost all our new business bookings across all our teams were sold in this format, highlighting the value our prospects see in this combination of services. Importantly, the new subscription package pricing has improved average contract value sold quarter over quarter.

Speaker 2

Before I turn the call over to Rami, I want to talk about our expectations for the rest of 2024. As I stated earlier, we believe there are emerging signs that the demand for tech professionals is improving as evidenced by the increasing number of tech job postings. As the past has shown us, as the demand for tech talent climbs, competition for skilled professionals intensifies. And as this competition heats up, companies will increasingly need our platforms to find, attract and hire the best tech professionals for their digital initiatives. We continue to forecast a return to year over year bookings growth in the second half of twenty twenty four and maintain our commitment to a full year 24% adjusted EBITDA margin.

Speaker 2

As we move forward, we continue to focus on improving our products and our go to market execution so that we are ready to capitalize on the anticipated increased demand for our tools. On that note, let me turn the call over to Rami, who will take you through our financials and then we'll take any questions you may have. Rami?

Speaker 3

Thank you, Art, and good afternoon, everyone. Jumping right in, let me take you through our financial results for the quarter. We reported total revenue of $36,000,000 which was down 7% on a year over year basis and 3% versus the prior quarter. Total bookings for the quarter were $48,800,000 down 9% year over year. As Art mentioned, our total recurring revenue was down 2% for the Q1.

Speaker 3

Dice revenue was $23,200,000 which was down 14% year over year and down 6% sequentially. Dice bookings were $32,000,000 down 15% year over year. We ended the quarter with 5,250 Dice recruitment package customers, which is down 4% from last quarter and down 15% year over year. Our average annual revenue per Dice recruitment package customer was up 1% sequentially and up 2% year over year to $15,997 During the quarter, over 90% of Dice revenue was recurring and came from annual or multi year contracts. For the quarter, our Dice revenue renewal rate was 82%, up from 78% in the 4th quarter and our Dice retention rate was 100%, up from 97% in the 4th quarter.

Speaker 3

ClearanceJobs revenue was $12,800,000 up 10% year over year and up 2% sequentially. Bookings for CJ were $16,800,000 up 5% year over year. We ended the Q1 with 2,032 CJ recruitment package customers, which was down 2% on a year over year basis and 1% sequentially. This slight reduction is attributable to churn with smaller customers. Our average annual revenue per CJ recruitment package customer was up 12% year over year and up 5% sequentially to $23,050 During the quarter, over 90% of CJ revenue is recurring comes from annual or multi year contracts.

Speaker 3

For the quarter, CJ's revenue renewal rate was 98% and CJ's retention rate was strong at 115%. The outstanding retention rate demonstrates the continued value CJ delivers in the recruitment of cleared professionals. Turning to operating expenses, 1st quarter operating expenses were down 10% to $34,100,000 when compared to $38,000,000 in the year ago quarter, reflecting cost savings associated with restructuring initiatives in 2023. We also drove

Speaker 4

We also drove efficiencies in our

Speaker 3

marketing program spend through more targeted and integrated campaigns. Both of these initiatives drove our lower operating expenses in the Q1. For the quarter, we had income tax expense of $2,300,000 on income before taxes of $757,000 Our tax rate for the quarter differed from the statutory rate due to tax expense of $1,800,000 from the tax impacts of share based compensation awards and $200,000 from state taxes related to research and development expenditures. We recorded a net loss of $1,500,000 or a loss of $0.03 per diluted share, which was driven by tax expense as I previously discussed. For the prior year quarter, we reported net income of $460,000 or earnings of $0.01 per diluted share.

Speaker 3

In the past, we have provided a non GAAP measure titled adjusted diluted earnings per share. Moving forward, we are titling this measure non GAAP earnings per share and are revising this performance measure to add back our non cash stock based compensation expense, which we believe provides a more transparent and comparable view of our results to our peer group. With that said, non GAAP earnings per share was $0.05 per diluted share for both the current and prior year quarter. Diluted shares outstanding for the quarter were 44,200,000 compared to 45,200,000 in the prior year quarter. Adjusted EBITDA for the Q1 increased 6% to $8,600,000 a margin of 24% compared to $8,100,000 or a margin of 21%, an increase of approximately 300 basis points from the Q1 a year ago.

Speaker 3

Operating cash flow for the Q1 was $2,100,000 compared to 0 in the prior year period, while purchases of fixed assets were $4,400,000 in the current quarter compared to $4,800,000 in the Q1 of last year. Included in fixed asset purchases this quarter was $3,400,000 of capitalized development costs compared to $4,600,000 Q1 of last year. Capitalized development costs for the company are primarily related to costs incurred from building new products and features on our platform. From a liquidity perspective, at the end of the quarter, we had $3,200,000 in cash and total debt of $41,000,000 under our $100,000,000 revolver. Total debt increased by $3,000,000 from $38,000,000 at the end of the 4th quarter, primarily due to seasonal payroll related Q1 expenses.

Speaker 3

Total debt was down from $46,000,000 in the prior year quarter. We finished the quarter at 1.1 times leverage. We continue to target approximately 1x leverage for the business. Deferred revenue at the end of the quarter was $55,700,000 down 5% from the Q1 of last year. Our total committed contract backlog at the end of the quarter was $114,500,000 which was down 8% from the end of the Q1 last year.

Speaker 3

Roughly 80% of the backlog is considered short term and will be recognized as revenue in the next

Speaker 4

12 months.

Speaker 3

During the quarter, we did not purchase shares under our share buyback program. However, we did purchase shares related to the vesting of share based awards. For the quarter, we repurchased 646,000 shares for $1,600,000 to cover income tax withholdings associated with the vesting of employee share awards. This compares to repurchases of 899,000 shares for $5,300,000 in the Q1 of last year. Moving on to guidance, we expect our bookings performance to improve in the 2nd quarter with growth in total bookings returning in the second half of the year.

Speaker 3

For the Q2, we expect our revenue to be similar to 1st quarter revenue with total revenue for the full year declining in the low single digit percentage range. From a profitability perspective, we are targeting a full year adjusted EBITDA margin of 24%. We remain focused on driving long term sustainable revenue growth and are well positioned from a customer acquisition perspective as tech hiring returns to more normal levels. To wrap up, while the current economic environment is still impacting our growth, we expect companies across all industries will increase their investment in technology initiatives as companies look to implement generative AI into their business models, which we believe will drive increased demand for our products and services as demand for technologists will follow. In the meantime, we are focused on improving our industry leading offerings and our go to market execution, so we are ready to capitalize on the acceleration of tech hiring.

Speaker 3

And with that, let me turn the call back to Arch.

Speaker 2

Thank you, Raimi. I'd like to thank all of our employees again for their hard work this past quarter. It is a pleasure to be part of such a great team. With that, we are happy to answer your questions.

Operator

Thank And today's first question comes from Zach Cummins with B. Riley. Please go ahead.

Speaker 5

Hi there. Ethan Wiedell calling in for Zach Cummins. Thank you for taking my questions. Just one on my end. Could you give a little incremental color maybe on your bundling strategy with Dice and CJ?

Speaker 5

Are there any gives and takes there that you can point to?

Speaker 2

Yes. We mentioned that virtually all of our new business deals were booked in this manner, and it was almost close to 100%. And I would say that we have found that this combination of unlimited job postings, so there's no more concept of job slots, which is endemic to our industry, as well as job boosts and a company page in combination really drives success for our customers. So we're really pleased with the penetration rate, if you will, associated with those new business bookings. We did see a large number of our existing accounts also move to this subscription bundle.

Speaker 2

And nevertheless, not at the same level as almost 100%. I think that's because it is a little bit higher in terms of the before the after price compared to the before price when you move to this package. You get a lot more value, but it's a little bit more expensive.

Speaker 5

Got it. Appreciate it. Thank you. Thank you.

Operator

And our next question comes from Max Michalis with Lake Street Capital Markets. Please go ahead.

Speaker 2

Hey, guys. Thanks for taking my questions. First one is just on your bookings outlook for improvement and then returning to total growth for the second half of the year. We think about that from a segment level, Dice and Clearance Jobs, what are you implying for, I guess, segment growth? So Dice was down 15% this quarter.

Speaker 2

Are you assuming a lower contracting Dice rate and then ClearanceJobs growth rate improving? Or should we expect Dice bookings to return to growth in the second half?

Speaker 3

Sure. I can take that one. So when we think about Q1 'twenty four, it's still a difficult comparison versus prior year as Q1 'twenty three was still very strong related to the macro tech hiring environment, including in our transactional bookings and revenue a year prior. We do expect the bookings year on year to show progressive improvements as booking comps ease throughout the year and we are seeing stabilization and strengthening in our renewal and retention rates across both brands. And as Art just discussed, our subscription packages, we're seeing additional interest in those packages as well that's fueling new business.

Speaker 3

From a brand specific perspective, we are expecting strengthening throughout the year in both brands.

Speaker 2

Okay. Thank you. And then I guess my next question would be, if we look at this new pricing bundle and it's good to see that ACVs are up quarter over quarter, Will you guys be sharing an actual ACV number as well as I guess retention numbers for this new price bungalow? Like to help us get an idea on what kind of growth we're actually seeing on a contract value standpoint. That's something that we're actively debating as to whether or not we're going to break that out separately, but I can appreciate the fact that everybody is interested in understanding the performance of the bundles themselves.

Speaker 2

So we'll definitely take that under consideration. All right. Sounds good. And I guess last one and I'll jump back into queue. It's good to see that tech postings are up, so 191 from 142 December.

Speaker 2

I guess how did that trend through April and I guess now into May, I guess, so early May, but I guess April? So ultimately, we get that report about 3 to 5 business days into a new month. So we do have the benefit of April. April was just about the same level as March, a little bit below that. I'd say, in a comparative way, it's statistically insignificant.

Speaker 2

It's flat with March. So we're still seeing that level of new tech job postings. I do think it is interesting that a pretty considerable amount, meaning the 16% figure are associated with AI and that's climbing month over month. I didn't mention it because I wanted to use March as kind of our baseline for comparison purposes. But April, we ticked up to 17% of all of our jobs, including AI skills.

Speaker 2

So we're definitely seeing this trend towards more AI related job activity. All right. Sounds good. Thanks guys. Thank you.

Operator

Our next question comes from Kevin Liu with K. Liu and Company LLC. Please go ahead.

Speaker 4

Hey, good afternoon. Maybe just continuing the AI discussion here. Could you talk a little bit about how much AI is kind of driving interest into the Dice platform from a customer standpoint? And then anything you guys are doing on your end to really capitalize on that?

Speaker 2

I think that's a great question, Kevin. And I can tell you that we are seeing a lot of interest in terms of activity on our site associated with our AI job articles as well as the two reports that we issued last month. So we have a report that's geared towards informing clients as to how they can tend to the question of how to recruit AI candidates or AI skilled candidates. And then we also have a report that really features what a candidate should think about in terms of their career and how to make sure that they have the right AI skills for the future. So we put out these 2 long format ebooks and we've seen a tremendous amount of interest as a result.

Speaker 4

That's great to hear. And maybe just going back to the question on kind of your confidence for renewed bookings growth in the second half here. What are you seeing in terms of pipelines, leads, etcetera, that kind of gives you confidence in that outlook? And then maybe specific to the CJ side of the equation, obviously, the threat of government shutdown has had impacts in some quarters, so we've seen that growth rate bounce around. But ultimately, would you expect that to be kind of a 10% plus growth for you guys or are there things in the environment that would still limit that side of the business?

Speaker 2

Yes, I could speak to all of the above. I could tell you that we do believe the pipeline is improving month over month, week over week for that matter. So we feel like there are signals ahead that still give us confidence for the second half of the year. I can also tell you that one clear signal is that Kforce and Robert Half, specifically the technology division of Robert Half has indicated guidance for growth again. So that is very good for us to believe that what we're seeing in terms of our pipeline is also what other staffing recruiting firms at least are looking at and seeing in their pipelines.

Speaker 2

I could tell you that we believe CJ should be booking in double digit growth range. We do believe it was suppressed by the kind of uncertainty in government funding of the defense budget. That has clearly passed in March. I would say we also feel bullish about a tailwind really existing associated with the fiscal year 2023 defense budget. If you remember, that budget actually went up by 10%.

Speaker 2

All of the projects, the awards have not been worked into the system as a result of that budget. I think there will be years of that kind of, call it, a golf ball going to the snake, if you will, because of the size of that increase in budget and what it means for projects.

Speaker 4

That's great to hear. And then just lastly for me, to capitalize on kind of all these opportunities and get back to the positive growth in the second half, could you just talk about the trajectory of sales and marketing spending? Is there a lot of incremental investment that's needed on either of those aspects?

Speaker 3

Sure. Hi, Kevin. This is Raimi. The sales and marketing spend is down year on year based on the restructuring that we did in 2023 in addition to what I mentioned earlier related to the efficiencies in our marketing campaigns. So at this point, we believe our Q1 sales and marketing spend is roughly what we're anticipating throughout the year in terms of sales and marketing spend.

Speaker 3

And we think that's the right level to position us for growth as well as investments in the future, yet maintaining that 24% EBITDA target that we're hitting in Q1 and anticipate hitting throughout the year.

Speaker 2

And I would go one step further, Kevin, to say that we don't view this recovery in terms of tech job interest to be a V shaped recovery. It's going to be a long, slow, steady recovery. We're not planning to add significantly or incrementally to the sales team in terms of headcount. We do have the ability to moderate our B2C, meaning, B2Candidate kind of spend, so that we can be very cautious as we see activity levels shift on our platforms. So there's mechanisms that we have to maintain that spend pretty effectively.

Speaker 2

And most importantly, we don't anticipate a larger team.

Speaker 4

All right. Sounds good. Thanks so much for taking the questions.

Speaker 5

Thank you.

Operator

And ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to management for closing remarks.

Speaker 2

Well, thank you, operator, and thank you all for joining us today. As always, if you have any questions about our company or would like to speak with management, please reach out to Todd and he will help arrange a meeting. Thank you for your interest in DHI Group and have a great day.

Operator

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

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Key Takeaways

  • The tech labor market shows signs of recovery with job postings rising from 142,000 in December to 191,000 in March, though still below the 2019 pre-pandemic average of 300,000, and 16% of postings now requiring AI skills.
  • In Q1, total revenue declined 7% year-over-year—Dice revenue fell 14% while ClearanceJobs grew 10%—with recurring revenue down 2% and total bookings off 9%, though transactional bookings improved sequentially as a leading indicator.
  • Operational efficiency drove a 24% adjusted EBITDA margin (up from 21% a year ago), $2.1 million in operating cash flow versus zero in prior year, and a 10% reduction in operating expenses year-over-year.
  • Product innovations—including a TopResume partnership, the new Discover Companies and job alert services on Dice (driving a 67% increase in applications) and CJ Live video content—have boosted candidate engagement and average contract values.
  • Management expects year-over-year bookings growth to return in H2 2024, maintains a full-year 24% adjusted EBITDA margin target, and forecasts low-single-digit revenue declines for 2024 with strengthened pipelines and CJ benefiting from secured government funding.
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Earnings Conference Call
DHI Group Q1 2024
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