Q3 2019 Earnings Call
Welcome to the D. H I group third quarter 2019 financial results Conference call.
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I would now like to turn the conference over to Rachel Ceccarelli Director of corporate Communications. Please go ahead.
Right. Thank you Andrea.
After having and welcome to the H.I. groups third quarter fiscal 2019 financial results conference call with yesterday's call or do you tried chief Executive Officer, Ari Bailey and Chief Financial Officer Gridlock.
Before turning the call our I'd like to cover a few items.
Good afternoon, the anti issued a press release announcing its third quarter fiscal 2019 <unk> financial results.
That's really the bell on the company's website at <unk> Dot com.
It was being broadcast live over the Internet for all interested parties and what tends to be archive and Investor Relations page of the company 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 historical information statement on today's call may constitute forward looking statement, the meaning of section 20, Onee a degree of exchange I've mentioned before.
When used the word anticipate believe expect Penn future and others to more expression at down by Sportsbook you take that.
These forward looking statements of bucked the trend management's current views concerning future events.
<unk> performance and are subject to risks uncertainties and actual results may differ materially from the outcome contain forward looking statements.
Doctors that could cause these forward looking statements differ from the actual results include the lazy development marketing, a bell and other risks and uncertainties discussed in the company periodic reports on Form 10-K , unconcealed and other filings with the Securities and Exchange Commission.
Do you try undertakes no obligation to update or revise any forward looking statements.
Lastly, during today's call, we're supposed to bring to specific financial measures, including adjusted revenues adjusted EBITDA adjusted EBITDA margins that are not prepared in accordance with the U.S. yeah.
Information about reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release.
Website at www, but the trigger dot com any investor Relations section.
I will now turn the conference over to our daily CEO of your type.
Thank you Rachel good afternoon, everyone and welcome to our third quarter fiscal 2019 earnings Conference call. We appreciate your interest in DHR.
During the quarter, we continue to make progress towards returning the company to overall positive revenue growth.
While we have not yet turned the corner from a rubbing perspective, we've made significant headway in the third quarter bike further strengthening our product offering and our go to market strategy, both of which are critical drivers for our future revenue growth.
We believe these efforts are positioning DHR to become the industry leader and the growing market for matching technologist with employers.
Now let me elaborate on some of the things we accomplished this quarter.
Let's start with the progress we made in our product offering.
As many of you know we have three platforms dice, you financial careers and clearance drops during this past year, we have delivered more product innovation at dice you financial careers that had been delivered in several years.
We are proud of the progress we have made to date, but wanted to more and you want to do it faster.
During the third quarter, we began hiring additional engineering talent to help accelerate our product roadmaps.
This quarter, we wants to significantly enhance candidate facing features on dice job search and Jabil works. They utilize our proprietary technology skills data model to create a better job search experience for our candidates.
This data model is a key differentiator against general west recruiting towards and recently submitted for patent protection.
With an improved search algorithm filtering capabilities and more preferences tailor to users or enhanced job search and job alerts features make it easier for technologists to find relevant jobs that fit their skills and requirements.
The significant product improvements we've made the dice over this past year, including Intel search.
Canada match.
Hey, purview pricing.
Job management, and now job search and job boards are delivering improved dice engagement metrics for both clients and candidates.
During the quarter. We also continued to improve our financial careers platform by releasing or you will return profile and messaging features.
Yes, the recruiter profile allows recruiters to create richt profiles, highlighting their interests contact information and job postings, they wish to share with candidates.
It allows candidates and recruiters to engage in a multitude of new ways to create stronger relationships.
He financial careers messaging service allows recruiters in Kansas to Chuck in real time on the clock.
These features were proven successful nerds jobs and you're seeing the same positive engagement trends now on you financial careers.
These and other unique features we have introduced over the past year or stepping stones for our transition from a job board to becoming a dynamic marketplace for matching technologists and employers.
Clearance jobs continues to drive innovation in the third quarter clearance jobs released its new employer dashboard, which focuses on delivering real time user engagement metrics and uses automated intelligence powered by in total search to recommend new connections for both clients and Canada.
Additionally, clearance jobs added 12, new curated groups, which are segmented discussion boards tailored to important career marketplace topics.
These groups are designed to foster dialogue, creating a stronger and more engaged community on the platform.
As I stated in the past clearance jobs is our most robust product offering promote the user experience and a feature perspective. It is generated solid double digit revenue growth for many quarters.
As such we are taking the industry meeting product features the clearance jobs and implementing them in the dice and you financial careers platforms.
By creating more value for clients in candidates you're building a foundation from which we can begin to accelerate revenue growth.
Looking ahead, we have a clear product road map in front of us for each of our platforms. We are working there I would add recruiter profile and messaging today's.
In total search and counted match you financial careers.
We expect those features to be widened the first half of next year.
Clearance jobs has a number of features planned for 2022 advanced the clear network with a focus on further automating recruiter workflow.
In addition to our product updates we are seeing successful growth in our managed services offering while still relatively small this team's work is super important because it delivers a full service solution for our commercial customers.
Now, let's talk about the second key driver to our future revenue growth, which is improving our go to market strategy.
A few quarters again, Oh go we established a new dice commercial accounts due to test the concept of selling to customers who have their own internal recruiting teams.
We are highly confident that this new approach toward go to market plan is working.
Our market research and this team's performance have demonstrated this is a big opportunity for the company, we will be significantly expanding this June 2020.
With the studies conducted over the last two quarters. We believe that there are tens of thousands of specific commercial targets in check and non tech companies and are putting together sales territory plans to go after them.
We are ready to accelerate this effort now that we have hired new sales leadership.
Already can often you joined the company on October 20 Threerd.
He is demonstrated experienced scaling hyper foreign sales teams and as a background in selling software products within the recruitment industry.
We're very excited to have already onboard and we believe we are now back on track with our plan to drive topline growth in both dice and the company as a whole.
Our market research shows that the online recruiting industry is projected to grow over 7% annually from 2018 to 2023 and that the tech professionals. So I'll say is forecast to grow faster at a rate of approximately 12% anyway.
We believe we have a better to open our competitors for companies that are hiring technologist and are confident that with our improved product offering and go to market strategy, we can grow our revenue at market rates.
While this won't happen overnight, we're building the foundation upon which to achieve this growth.
Lastly, we continue to see our candidate registration and surgical profile metrics improve as a result of improved marketing programs.
Our value proposition is delivering high quality candidates to our clients in the third quarter, our digital marketing channels again drove significant growth in new candidate activity.
In closing we continued to be excited about the market opportunity in front us as the Wall Street Journal recently reported in their article on the most promising clearance of the next decade three of the top 10, most promising careers our technology related we've been talking being application software developers.
Over the next decade, the number of application software developers is expected to grow by 28%.
The other two tech careers and the top 10 list or also expecting double digit growth.
We believe this highlights the opportunity we have in front of US and shows that we are in a way in place at the right time.
With that let me turn call over to Luke will take you through our quarterly financials and then we'll take any questions you may have.
Thank you art and good afternoon, everyone.
As a reminder, and for those on the call that maybe new to our story since the end of 2017 at through the third quarter 2018, we divested Ford Encore brand and closer to place your business. We're now solely concentrated on three type focus platforms such today my remarks and related revenue comparisons will refer only to the results of these.
The remaining businesses.
Jumping right in front of third quarter, we reported $37.2 billion, which was flat both year over year and sequentially, excluding the impact of foreign exchange.
Nice revenues were $22.9 million in the third quarter down 3% year over year and 1% sequentially.
The stabilizing a base revenue represents an improved performance in the third quarter last year when revenue declined 6% on a year over year basis.
We expect the significant product innovation, we are delivering on dice as well as are increasing investments in sales and marketing to drive improved performance and move into positive territory next year.
The trend the dice recruitment package customers has remained stable following many years of decline.
We ended the third quarter in line with the first two with 6100 customers.
Our renewal rate on customer account of 66% and our and our revenue renewal rate of 76%. We're both slice of the same period last year.
Average monthly revenue for recruitment package customer was up slightly year over year to $1131 or approximately $13600 on an annual basis, which is significant as over 90% of relates revenues our recurring income from recruitment package customers.
The average contract length of these packages have been steady at slightly over 12 months.
Third quarter revenue for you financial careers was $7.9 billion down 5% from the prior year or 2%, excluding the impact of foreign exchange rates.
The financial careers performance this quarter was negatively impacted by Brexit, where we saw a slowdown in recruiting volume across the bay and European financial industry because of the current uncertainty the protests in Hong Kong also we're also slowing contributors to our contractor.
Clearance jobs third quarter revenues were $6.3 million for an increase of 70% year over year.
This continued solid double digit revenue growth rate, which we've seen now for several years is reflective of CJ strong product innovation and competitive differentiation and we continue to see strong growth prospects for this platform going forward.
Overall, the substantial changes we've made over the past year has helped stabilize our total revenue and laid a foundation we can build upon.
As art described we're now adding to building blocks to retreat innovation and sales.
While these ongoing investment bought result in immediate jumped to our revenue growth rates, we are confident better clad once fully executed well put us in that position to generate sustained long term revenue growth beginning next year.
Moving to the fourth quarter, we expect our total revenue to remain around the third quarter level with stability as safe as we continue to invest in more product innovation and begin to ramp up of our commercial sales organization and with continued strong growth and clearance jobs offsetting the convenient geopolitical impacts on the financial career.
Third quarter operating expenses were $31.9 billion, representing a reduction of $5.2 billion or 40% year over year of with 1.9 billion related to our divested business and the closure, but you're up last year.
The decided operating expenses that are remaining core business came from spending efficiencies generated from the expense reduction project. We discussed on the last few call as well as the non regardless of the consulting fees related to that project.
These efficiencies are helping fund the current ramp of our sales and engineering capability.
Also helping our operating expense performance in this quarter was the greater proportion of product and engineering resources. The flight the discrete product development activities, which increased our capitalization rates.
As Mark mentioned, we're seeing good initial traction from the commercial accounts. They and we are newsy are on board, we invested substantially adds to our commercial accounts sales coverage over the next two quarters, which will drive increased sales expense.
As discussed will also be adding additional engineering talent accelerated deployment of our new features which will drive some increased product and capital expenditures and upcoming quarters.
That's exposed for the third quarter was $700000, reflecting an effective tax rate for the year to date period of 25%.
Net income for the quarter was $4.4 million or eight cents per diluted share against net income of $930000 or two cents per diluted share a year ago.
This quarter's earnings per share how to one any benefit from discrete tax items, while last year. The rate was adversely impacted by four cents per diluted share from disposition related costs at a small book loss on the spinoff from Brazil.
So excluding those items on the normalized basis EPS for the quarter was seconds, but again six that last year.
Adjusted EBITDA margin for the third quarter came in at 23% up two percentage points for the same quarter last last year.
For the full fiscal year, we continue to expect our adjusted EBITDA margin pickup in at approximately 23%, even with our increased investment in sales and engineering capabilities.
We generated $4.6 billion of operating cash flow that third quarter, representing a substantial increase of $4.2 billion year over year with higher income and normalize invoicing, having cycle through to more flexible billing practices that were introduced last year.
Turning to our balance sheet, we expect a modest increase in the current run rate of capital expenditures in the fourth quarter as we continue to invest in the basin with an increase in product and engineering headcount.
As a reminder, our capital expenditure is mostly made up of capitalized values of open bulb development stuff.
Have you ended the quarter, our total debt was $8 million, bringing our debt less cash to $3.5 million.
The first you ended the quarter was $51.1 million compared to $56.1 billion, a year ago, reflecting the more flexible billing practices introduced last year. As a reminder, deferred revenue represents a portion of our contracts that have been invoiced in advance of services to be Boulder.
It's important to note that the current reduction in deferred revenue is not indicative of its more of our overall business, but rather merely a reduction of the portion of our contracts that are being important upfront.
When we add the as bill portion of our contracts to deferred revenue.
They did contract backlog at the end of the quarter was actually slightly above the third quarter last year.
We repurchased approximately 367000 shares during the quarter at an average price of $3.46, leaving approximately $6 million remaining of the current 7 million dollar buyback program, which run through late 2020.
We believe our buyback program is appropriate given the current valuation I think can also help offset the dilution impact of stock based compensation.
So to recap we made significant progress this year, we stabilized the business improves our profitability delivered 10 million more in operating cash for the last year and pay down a significant portion of our that and are supporting our thought with our buybacks.
We have no lays a solid foundation and are putting in place building blocks upon which will return sustained revenue growth.
While we made much progress we remain focused on continued execution of our gains line and we look forward to reporting on our evolution in the coming quarters.
As always thank you for your interest today and with that let me turn the call back to our thanks, Luke I'd like to close by once again. Thank you all our employees around the globe for their hard work. This last quarter. It is a pleasure to be part of such a great team with that we're happy to take your questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you're using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then too.
This time, we will pause momentarily to assemble our roster.
And our first question comes from Josh Vogel of Sidoti.
Please go ahead.
Thank you how you doing shorten loop.
Nice to hear about all the positive developments in the in the business.
Hi, Josh.
Great. So I have a couple of questions for you.
I guess just start.
Yes, there is obviously the comments around investing in your sales and engineering capabilities.
When you already doing that in Q3 or is that it's really planned for Q4, because when when we look at some of your operating expense lines.
Not only down.
Fairly significantly year over year, but also sequentially I guess, maybe if you can give us a sensor quantify how.
Product development, she ash sales and marketing and Gionee will trend over the next couple of quarters that would be really helpful.
So I'll cover off the first part of your question, Josh and then I'll hand, it off till the end.
In the Grand scheme of things, Yes, we are investing in sales and in engineering resources I would say that as a result of our chief revenue officer, leaving us at the end of June we've put a pause on oral.
Sales related investment and Thats, because I'm, a believer that the new see euro our economic ski should have the right to pick his own team and a format doubt appropriate to his strategy and we feel like we're now back on that track in Q4, we did actually higher quite a.
Number of engineering resources in Q3, that's as part of an initiative to make sure that we have all the necessary domains of expertise that we need to accelerate our product roadmaps in 2020. So there was a pretty considerable amount of engineering hires but again the bigger picture is that we did pause on sales.
Yes, and just to give you a bit more of a sense on on the numbers side. We are we already started to on the engineered but even on sale. The sales numbers are up a little bit, but remember we generated about $7 million that efficiencies.
Our efforts last year, and that's been able to fund the increases so far that being said.
And some of the reductions by the way are coming from higher capitalization rate Bill, we're adding engineers, but we're also reducing the amounts that are going to operating expense, what you'll notice that.
The the capital expenditures picked up a little bit this quarter as well. So just to give you a sense of how that plays out but that being said I think going forward given where we're ramping you could expect you could expect some some decrease in the margins and that's going to be temporary while we go through our investment cycle.
Beyond that we would expect to get back to operating expenditure is basically trying to show up the business that put us back a drill.
So I think that would be the that that would be the main explanation just one more point I guess on the capital expenditures. This quarter. There is a runway to element to the engineering of the capitalization there, but they're all there was also about half the increase that you saw this quarter is up.
Increasing from office space again, Thats should be a one time item is not a not an ongoing running costs. So just to give you a sense of where where things are going to go it will impact margins, but not a dramatic way we continued to be very focused on them.
And we'll have more than happy about that in the fourth quarter, when we talked about her budget.
That's great that's helpful. Thank you.
When when we think about your go to market strategy.
And.
How many are on the team today.
You are you mentioned that you are significantly going to expand the team in 2020.
Can you just put some numbers behind that and also I mean analyst. So I'd like numbers can you put a dollar amount or quantify the teams successes to date if possible.
So let me give you little bit of a framework to think about that first part of your question, which is that the team today for commercial accounts consists of.
Individuals that are renewing customer accounts, meaning that they're taking an existing contract in renewing it for the next year and then there are.
Elements of that team that are effectively new business relationship sales reps and we are continuing to expand the new business sales team within the overarching commercial accounts team and that's the one that we should see a doubling of.
As a minimum in terms of their gene stream. This next year in 2020, roughly speaking that's a team thats a little bit less than 10 people. So think of it as doubling to roughly 20 people in terms of the actual bookings.
Bookings figures for this year to date for the commercial accounts team.
Don't have the exact numbers in front me, but I can tell you that they have exceeded their targets and they are on a nice increase or any decline and we feel very comfortable that that that increased can continue because of the depth of the market. If you think about the fact that we have 6100 customer relationships today.
Okay and the results of our study from Q2 in Q3 indicate that we are.
Roughly 88000 solid targets to go after we feel comfortable that there was a lot of runway left for that team to continue to succeed with.
That's great. Thank you.
And look I'm, sorry, I missed.
What you said the numbers were on the share repurchases in the quarter in the and the average price.
And then just kind of building off and thinking about capital allocation.
Can you guys. Please talk to your appetite today for potential acquisitions, if you're open to exploring deals and if so.
Would it be maybe.
Hi, geographic strategy or a brand or product enhancement type of play. Thank you.
I'll give you a comment on on the numbers I'm sure art will want to call. It on the strategy that kind of like acquisition, we consider but on the buyback if in the 10-Q as well, but 367000 shares at $3.46.
Again, we looked at capital efficiency more than that in general capital allocation strategy.
There's some point the supply point for us. So we consider our are useful and if you look at year to date, so about $282 of 80 cents that we bought back about 700000 shares.
Our strategy continues to be to put put our capital in the business and as you can see here our capital that we're putting that play is is to invest in salesforce.
To invest in our engineering capabilities, that's always going to be the first place the sharp the business.
Beyond that that is almost all paid off.
As you know.
Beyond that I think we're going to continue to want to see where there's opportunities for the business maintain or flexibility and we look outside typically for.
Potential wedge opportunities, but I think are we let our speak to that and in the past when we when we covered all those basis I think you know our history.
Returning capital to shareholders.
So let me give you a couple additional thoughts Josh.
I would say that our first focus is to fix the companies the brands that we manage to date and like I say fix them I mean invest in product and our go to market strategy. So that they are creating growth revenue growth.
And we are nevertheless, opportunistic when it comes to thinking about acquisitions, we do get presented various opportunities from time to time. When you asked me, whether or not I think of acquisitions from a geographic perspective or from a brand perspective, it's definitely brand specific and I will tell.
All you that we are committed to the idea that we are a specialist provider focused on check so anything that allows us to essentially deliver better value proposition to detect recruiters would be the right kind of acquisition for us to take on but again I wouldn't say that are probably.
Or is to fundamentally transform the individual brands as they exist today in terms of product and go to market approach.
Thank you and just just one more and I'll hop back in the Q.
Understanding that there will be a little bit of margin compression with all of your planned investments, but is it too early to give us a read on what your adjusted EBITDA margin could look like in 2020 should we still expect to see ongoing expansion.
I think in 2020 because of the investment, but even the the annualization of what we're putting in right now I would expect the margins to come down somewhat.
But not in the dramatic way for 2004, and again, we'll have more specifics to provide.
Third.
Sounds good. Thank you guys for taking my questions.
Alright, thanks, very much Josh.
Again, if you would like to ask a question. Please press Star then one.
And our next question will come from Kara Anderson of B. Riley FBR. Please go ahead.
Hey, guys. This is a mine I'm jumping in for Kara.
Hey.
I just wanted to get a sense for how you are progressing with your pay per view model.
Well the common on like how much of the user base is pay per view versus subscription.
So I don't have the exact statistics in front me amount, but I can tell you that we view pay per view as an enabler for that commercial accounts team, but I was just talking about and so pretty good percentage I don't know again have the exact figures off the top my head off of new customers are taking a pay per view cost.
Track and what we're finding is that we are able to accelerate the number of jobs that they are actually posting as well as provide direct value to them in terms of their discovery of the benefits of the platform. We wanted to make the pay per view format. So compelling that it made it and.
Easy value proposition for them to say, yes, too, but again I would say I believe that.
If it's not going to Georgia.
At least close to 50 50 of all new business, that's flowing through a commercial accounts is taking that pay per view format and I would add Amanda continues to progress in there and a good fashion, but still not at the mid level that material that we've talked about visit.
Got it Thats helpful. So how should we think about light economics for the pay per view.
Subset of users versus the subscription subset of users from the perspective of average monthly revenue per user.
So I'd say that as it turns out it looks like it is about the same or more than what we have.
Generated in the past from an average user perspective.
At our average annualized contract value is roughly about 13 and a half thousand dollars per year.
Looks like the statistics are are generally in that range, but of course, that's an average and there is a lot of variability. When you think about the size of customers were signing up some customers as commercial accounts that are over $100000. Their first contract for signing some some on pilot bases for less.
In 5000, let's say.
So those would be like a 90 day pilot kind of format, but we've seen a slight pickup in our average contract value of new business acquisition over the last several quarters, we feel that that contributor to it. We also know that on where color where customers are reviewing.
Going from one important to the other with on the conversion we are seeing accretion as well, yes. Its net.
Revenue accretive.
That's helpful. Okay, and then I mean last question for me see I mean over the last year. So you've rolled out a number of new products and features across your portfolio of brands.
Let me can you talk about which of the parts of features that you've rolled out that it's been most effective in customer engagement.
So I personally think that all of them in combination really make the value proposition behind the platform, but if I was to really think about the individual.
Capabilities that we rolled out that make a difference in terms of views and applications. It would be Intel search and then candidate match and we're seeing a large amount of engagement and those two particular features again pay per view is important as well, but it's really a pricing mechanism not per.
Or say a feature on the platform are those would be the three ones, but I think are very notable.
I think there are all part there are all part of following the clearance jobs format and clearance jobs continues to hit a new height. Every every quarter in terms of the level of engagement with the candidates and were with the employer. So everything that we see their confirms that were underwrite track to continue through to approve the product connection with customers.
No that is.
Thank you that's very helpful I'll jump back in the Q.
Great appreciate a month.
This concludes our question and answer session I would like to turn the conference back over to Rachel Ceccarelli for any closing remarks.
Alright, thanks, everyone for your interest in Dxi group to scheduled meeting with management. Please email IR at Stryker Dot Com work, how Q1 Q4 48411, thanks for joining our call and have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.