Q1 2020 Earnings Call

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Todd currently with MK, our Investor Relations. Please go ahead.

Thank you operator, good afternoon, and welcome to DHR group's first quarter fiscal 2020, <unk> financial results Conference call.

With me on todays call or DHR C O arm daily and Chief Financial Officer cabin Boston.

Before I turn the call over to hurt I'd like to cover a few quick items.

<unk> issued a press release announcing its first quarter fiscal 2020 <unk> financial results.

This release is available on the company's website DHL Green Dot com.

This call is being broadcast 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 involve risks and uncertainties. Please note that except for the historical information statements on today's call may constitute forward looking statements. What's on the meaning of section 21, <unk> or the Securities Exchange Act of 1934.

When used the words anticipate believe expect and Thailand future and other similar expressions identify forward looking statements. These forward looking statements, reflecting management's current views concerning future events and financial performance.

They are subject to risks and uncertainties and actual results may differ materially from the outcomes contained in any forward looking statements.

Factors that could cause these forward looking statements differ from actual results include delays and develop.

Marketing or sales adverse.

The impact of and uncertainties surrounding the cobot 19 pandemic.

Other risks and uncertainties discussed in the company's periodic reports on form 10-K, and 10-Q and other filings with the Securities Exchange Commission.

DHR undertakes no obligation to update or revise any forward looking statements.

Lastly, during today's call matters, all referred to specific financial measures, including.

Adjusted EBITDA, adjusted EBITDA margin and that debt, but are not prepared in accordance with U.S. GAAP information about and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release and on our website at Www Dot DHL.

Group Dot com.

I'll now turn the call over to our daily C.G.H. I grew up.

Thank you Todd.

Good afternoon, everyone and welcome to our first quarter fiscal 2020 earnings Conference call. We appreciate your interest in DHR.

I want to begin by saying a few words about the impact of Cobot 19, and our response to this global pandemic first I want to express our heartfelt concern to all of those who have been impacted and to everyone listening today I Hope you and your family and friends are staying safe and healthy.

In the past several weeks DHR has jumped into action to aid our community by launching Cobot 19 resource centers on each of our brand sites assisting both clients and candidates alike with information relevant to their needs in these challenging times.

And just last week, we watch the campaign to provide free recruitment services to U.S. hospitals to help them find technologists and feels like electronic Medical Records health care administration and computer system processing.

That's the corporate 19 pandemic continues to unfold our foremost concern at the age <unk> is to ensure the health and safety our employees their families and all worldwide community.

As such we have taken extra ordinary measures to maintain continuity of our operations and to continue to safely operate at full capacity, while complying with the local state and country mandated protection directives.

All of our employees are working from the residences using the best possible remote communication and collaboration tools and our team members, including sales and support marketing and R&D continue to be highly effective.

DHR has had a video meeting culture for many years, given the global nature of our team.

They technology company, we have significant experience operating in a remote work environment.

Well before this pandemic, 95% of our employees were utilizing company laptops with the ability to work from home.

The vast majority of our sales team routinely meets with clients remotely versus in person.

And our R&D team uses online dep offs tools to promote code to production.

And as a result, we deliver two of our most significant product releases this year, while our employees were working from home.

Well the current environment is certainly challenging the way that we all live and work DHR. Its business model gives us some level of protection instability in these uncertain times at 90% of our revenues are generated through annual subscription based contracts.

Additionally, our business has a seasonality that has benefited us with our largest two quarters for bookings being the fourth quarter and first quarter of each year.

As a result as of March 31st we had already booked over two thirds of our total revenue for fiscal 2020.

Despite the difficult environment, DHR I was able to exceed its target of a 20% adjusted EBITDA margin in the first quarter. We also took the precautionary step to ensure sufficient liquidity by drawing down an additional 25 million on our credit facility in early March while still maintaining a sick.

Net cash cushion to our covenants.

As we continue to work through these unprecedented times with some of our competitors announcing layoffs I want to emphasize that the strengths of our business model put us in a very different category and much stronger position that many of these other companies.

Do you try is a specialist not a general west we match clients with technologists and their unique skill sets.

Yeah. He tries to subscription model not pay as you go.

Do you try provides permanent hires not hourly workers and do you try focuses on the enterprise market less on the SMB space.

We believe our unique business model positions us well to weather the storm.

Additionally over the past several weeks, we've seen a stable number of tech job postings enterprises look to accelerate the use of technology in their business.

Now more than ever business is realized they need an online business model, a way of delivering services without being face to face in a way to manage their remote employees effectively.

As a result, we continue to see a number of businesses looking for technologists to help accelerate these efforts.

Every week, we review report the detailed the total number of new Tech job postings, it's compiled by scraping the career pages for U.S. corporate web site each night.

Over the past several weeks the total number of job postings has Walmart remained in line with the trailing 12 month trend.

The types of skills requested have shifted with cyber security and systems engineering seeing an increased demand, but the overall volume of postings has remained relatively consistent.

Over the longer term if you look at the U.S. Bureau of Labor Statistics trend line for tech jobs over the past 20 years, including through the dotcom bubble and great recession, there's been a constant increase in technologist positions in this country.

The market for technologists was not close to zero unemployment level before the pandemic and we expect this high level of demand for these skill sets to continue.

And DHR is well positioned for this opportunity even in this challenging environment as a result of the significant progress we made over the past year in building the leading marketplace for matching technologists with our clients.

In 2019, we delivered over 20 marquee product releases and dozens of minor releases during.

During the first quarter, we continue to deliver a high pace product innovation.

Including integrating Intel a search with our dice job management console.

This mark he release demonstrates the value of our patent pending technology skills data model when a client posts a new tech job Intel a search automatically generates a list of qualified candidates from our database.

The technology technologist recruitment process, it's all about gaining access to the right skill sets and this powerful tool allows our clients to save time and their search process.

We also moved 100% of our audience to a new dice homepage that includes a modern layout and navigation scheme.

Additionally, we added a private email feature.

Which enables dice candidates to protect a personal email address and only sure it with recruiters when they choose.

On our path to transform dice into an indispensable career marketplace Trust is a cornerstone of that experience.

Private email encourages candidates to make their profiles visible and up to date, increasing the breadth of talent visible to our clients.

The complete make over of the dice client experience over the past year, including Intel search candidate match job management job search job alerts multi location search and now our new dice homepage and private email are delivering more value every day.

We also launched Jabil works on you have seen in the first quarter with this release you see in days are now on a common DHR job search and alerts platform illustrating our code once deployed many strategy across our brands.

Hoping candidates find jobs that fit their skills and interests is the top priority of our job search engineering team.

The new job alerts release, because a significant step forward towards our objective of having a best in class search experience for our candidates.

Finally, we also launched CJ favorites in the quarter. This feature allows clearance jobs clients to keep tabs on top candidate prospects receive alerts when they are active on the site and engage when they are receptive to contact.

CJ continues to be our test bed for key market leading features.

Looking ahead, we have a clear product road map in front of us for each one of our platforms.

We are working now to add recruiter profile and remote jobs to dice and.

And then tell search and Kennedy matched to eat financial careers.

There is no question that the importance of defining and searching for remote jobs has surged in popularity over the past few weeks and I'm grateful that our team has accelerated the delivery of the remote jobs feature.

Simultaneously, we are working on delivering significant workflow automation features and clearance jobs.

We expect these additional features to the lie in this second quarter.

Speaking of clearance jobs I would like to update you on our progress in pursuing direct government contracts one of our key growth initiatives, we launched last year.

First jobs has done an excellent job growing year over year in the cleared professional market however, less than 1% of its revenue historically has come from direct contacts contracts with the government agencies.

Last year, we launched an initiative to identify U.S. government agencies, we could be working with and understand more about their hiring needs for technology professionals.

As you suspect these government organizations have just as much demand for technologist as the government contractors, we served today.

As such we put together a planned targeting the agencies, we wanted to approach first and we've seen some early success.

In a press release issued last week, we announced that we now serve 18 government agencies.

We're making excellent headway and I'm very proud of the effort of the clearance jobs team as they take on this entirely new customer segment.

We expect more government agencies to sign on as customers throughout Twentytwenty.

We are proud to announce that the department of defense has recently designated a clearance jobs as an essential supplier, which they define as.

On a central service needed to ensure the continuing operation of government agencies.

Now, let me briefly touch on the progress we continue to make improving our go to market strategy and execution.

As I mentioned on our last call during the fourth quarter, our new Chief revenue Officer, our economic ski added top notch sales leadership to his team and we created brand new dice commercial sales teams in both Denver and New York.

These teams grew their pipelines very successfully and we signed on many new clients based on their efforts for the first 10 weeks of the court.

Obviously, the state of the U.S. economy changed dramatically in mid March and these teams, which are 100% dedicated to building new business relationships have seen what we believe as a temporary slowdown in their efforts as a result.

The insights we gained in the first 10 weeks of the quarter in the momentum we saw in signing new customers gives us great confidence that our focus on commercial accounts will be the cornerstone for our growth as the business environment normalizes.

As I conclude my remarks, I want to reiterate that as a specialist we have built a better to open our competitors for companies looking to hire technologists.

With our improved product offering and go to market strategy. We believe we can grow our revenue at or above the market growth rate over the longer term.

While this growth won't happen overnight and koeppen 19 presents uncertainty we are confident in our business plan and the continued progress we're making towards achieving our goal.

We remain incredibly excited about the market opportunity in front of US we believe the investments we made in 2019 and we'll continue to make in 2020 are positioning DHR as the industry leader in matching technologists with employers.

With that let me turn the call over to Kevin who will take you through our financials and then we'll take any questions you may have Kevin.

Thank you art and good afternoon, everyone.

Let's jump right into the quarterly results.

First quarter, we reported total revenues $6.6 million, which was down 3% from the fourth quarter and down 1% year over year. When you exclude the impact of foreign exchange.

Nice revenue with $22.5 million in the first quarter down, 3% sequentially and down 3% year over year.

We ended the first quarter with 5850 dice recruitment package customers, which is down 3% sequentially and 4% year over year.

We continue to see an increase in our average monthly revenue per recruitment package customer, which was up 2% year over year to $1153 or approximately $13840 on an annual basis.

It is important as over 90% of dice revenue is recurring and comes from recruitment package customers.

Our dice customer renewal rate was 67% for the first quarter down one percentage point year over year.

And our revenue renewal rate was 80%, which was also down one percentage point when compared to the same period last year.

As we look at our dice customers. Our strategy is to focus on these larger relationships, which creates a more stable customer base.

Moving upstream in terms of our marketing efforts sales activities and go to market approach. We believe we are putting ourselves in the best position for stability and growth.

As an example, currently 15% of our customers generate 50% of our recruitment package revenue.

No customer makes up even 1% of revenue.

We think this is a good balance of a strong stable revenue base without having customer concentration risk.

First quarter revenue Efinancialcareers was $7.2 million down 6% from the fourth quarter and 10% year over year, when excluding the impact of foreign exchange rates.

As expected cobot 19 negatively impacted our performance for Efinancialcareers during the quarter.

And the APAC region, the FCC second largest geography, we experienced difficulties at the beginning of the quarter at the Corona virus hit both Singapore, and Hong Kong and the second week of January.

In the UK and European financial industry, we saw the slowdown towards the latter half of the quarter.

Clearance jobs first quarter revenue was $6.9 million increased 4% sequentially and 19% year over year. This continued solid double digit revenue growth year over year is reflective of its strong innovative products and competitive differentiation.

Turning to operating expenses.

First quarter operating expenses were $41.9 million, which includes the impairment of the dice tradename up $7.2 million, which I will address in a moment.

Excluding the impairment operating expenses were $34.7 million, representing an increase of $1.2 million for 3% year over year.

This increase in operating expenses was primarily driven by the current ramp up of our sales and engineering capabilities.

As art mentioned, we added several new sales reps to our commercial accounts team during the fourth quarter, which drove an increase in sales expense this quarter.

We also added additional engineering talent in the fourth quarter to accelerate the deployment of new product features which drove increases in both product expense and capital expenditures.

In light of the current environment, we have reviewed our entire cost structure and have begun reducing non head count related expenses, both operating expenses and capital expenditures. This includes such areas as contractor and consulting spend marketing spend future head count growth and third party vendors bad.

As an example, we have found several opportunities to extend critical vendor agreements prior to their expiration at lower per month or per user rates.

With regards to marketing, we believe we can still or keep our candidate and client engagement metrics with lower spend as overall digital advertising rates have come down.

We will continue to evaluate our cost structure and are confident in our ability to match our expenses with any revenue changes that might occur.

We had a tax benefit for the first quarter of approximately $900000, resulting in an effective tax rate of 12%, which includes the impacts of the impairment losses in certain discrete tax items related to stock based compensation.

As I mentioned during the first quarter, we recorded an impairment charge of $7.2 million related to the dice trade man.

This impairment charge was primarily driven by increased at a weighted average cost of capital and a decline to the royalty rate used in valuing the DC the dice tradename, both assumptions, resulting from the impact of Cobot 19.

Also during the quarter, we recorded an impairment charge of $2 million due to liquidity concerns for a minority equity investment made in 2016 2017.

This brings the investments value to zero.

We recognized a net loss for the first quarter up $6.6 million or 13 cents per diluted share compared to net income of $1.6 million or three cents per diluted share a year ago.

This quarter's earnings per share how to 16 cents detriment as a result of the impairment of intangible assets and equity investments as well as certain discreet tax and other items.

Last years earnings had a four penny detriment from disposition related and discrete tax items.

Excluding those items on a normalized basis EPS for the quarter was three cents versus seven cents last year.

Adjusted EBITDA margin for the first quarter was 21% down from 23% in the same quarter last year.

We generated 2.9 million of operating cash flow into first quarter compared to 3.2 million in the prior year quarter.

From a liquidity perspective.

And we had approximately $5 million of net debt and 10 million drawn on a $90 million revolver.

During the quarter, we drew down $27 million from our revolver, which puts us at 1.1 times leverage which is well within our covenant of 2.5 times leverage.

We've added cash to our balance sheet to ensure we can manage through these economic fluctuations.

The ended the quarter. Our total debt was $37 million, we had 27.8 million of cash, resulting in net debt of $9.2 million.

Even with this incremental borrowing we still have sufficient borrowing capacity available to us under the facility.

Deferred revenue at the ended the quarter was $55.5 million down down 9% from year ago.

This is due to more contracts, having monthly or quarterly payment terms.

When we add the unbilled portion of our contracts to deferred revenue are committed contract backlog at the ended the quarter was down 1% from the end of the first quarter last year.

As part of our share buyback program, we repurchased approximately 660000 shares during the first quarter or $1.6 million or $2.49 per share.

Slept roughly $3.3 million remaining of the current $7 million buyback program, which runs through may of this year.

I would like to note that da ties Board of Directors has approved the five new 5 million dollar share buyback program, which will begin following the expiration of our current program and run through May of 2021.

We believe this approval is a recognition of the strength in the long term prospects of our business.

Consistent with our previous programs, we will continue to evaluate investment opportunities in the business against buying back shares while also using it as an opportunity to offset the impact of our employee equity incentive programs.

As we look ahead at the dice brand, we are still signing large deals even in the current environment.

As art mentioned, while it's still early and trying to understand what effect cobot 19 will have on our market. We've seen a stable number of tech job postings in the past few weeks as companies look to accelerate the use of technology and their business model.

For Efinancialcareers wallet operates in multiple geographies, we're seeing encouraging signs in several regions.

With FC we tend to have larger relationships as an example, approximately 75% of the global 50 banks our customers.

This provides more stability in the current environment in fact in the last few weeks, we have signed or renewed many of those large customers, including Blackrock Wells Fargo and Deutsche Bank.

With regards to clearance jobs, they grew to the dot com implosion of 2001, and the great recession of 2008, because their success is correlated to the U.S. Department of defense budget, which is relatively speaking immune to the environment, we find ourselves and.

Looking forward, we will operate the business in a manner that balances costs with the revenue opportunity maintains our employee base and allows us to continue investing in our business to drive long term growth and to support our customers and these challenging times.

Such will not providing specific guidance at this point, we continue to manage the business to margins in the 20% range.

Let me sum up by saying that while we find ourselves an extremely challenging times, we feel our business model provides us with some protection and predictability and we're confident in the investments we have made an innovation and sales. We remain focused on the continued execution of our business plan and look forward to reporting on our progress throughout the rest.

2020, and with that let me turn the call back to art.

Thanks, Kevin I'd like to close by once again thanking all of 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.

Thank you.

He will now begin the question and answer session to ask a question you May Press Star then one and telephone keypad, if you're using a speakerphone. Please pick up your handset will present the keys to.

To withdraw your question. Please press Star then too.

At this time, we will pause momentarily to assemble our roster.

And the first question will come from Josh Vogel with Sidoti and company. Please go ahead.

Thank you a good evening Arden, Kevin Hope you both are doing well.

I really appreciate that Josh Thank you.

A lot of Ah. Thank you a lot of impressive commentary on the business and announcements of lead, particularly a working directly with.

The government. My question is does does that.

Centrally cannibalize any of your opportunities with the subcontractors you were working with.

Oh, no really doesn't Josh because ultimately.

When we work with a contractor on military contractor, they're trying to find cleared professionals to work on their own projects internally, whereas if we're working with the government agency. We are literally finding a technologist in most cases to be part of their teams and their they're separate so.

We look at it as you know purely additive in terms of our ability to facilitate finding those cleared professionals.

Okay, that's great and how soon or are you already starting to see some revenue from those relationships.

Oh, yes, we are the relationship span.

Pilots, but also our subscription based contracts and when we do put them on a subscription based contract that's when a larger amount of revenue kicks in we generally charge a small amount for a pilot to encourage them to take that risk to use the platform, but then the subscript.

And based contracts really our contracts that are generally substantial in nature usually in the.

Large tens of thousands to even hundreds of thousands of dollar kind of value range.

Okay, great and the announcement I guess.

Last week, it's really nice to see what you're doing to help out U.S. hospitals kind of a two pronged question. One is have you I know it's only a couple of these end, but have you been seeing a meaningful bump in candidate profiles. There and then on the other side are you exploring this type of action for.

Or any other industries in particular.

So great questions I would say that we have seen a meaningful bump in Canada activity, our site and that includes registrations, but also job views and applications and that is I shouldn't say just site that is largely across all three sites. If you think about.

What's happening in the work from home environment, It's a lot easier for candidates to spend more time on sites and to be more actively engaged and unfortunately, a lot of people are thinking about the certainty of their own personal environment. So all those things are leading to more candidate activity and the second question well.

They're not we would bring this out to other industries. We are still thinking about how we would do that we want to get a little bit more time behind us and experience how the hospital campaign effectively works over the next few weeks.

Okay makes sense makes sense I'm, just thinking about cash flow.

Did you apply for any government programs under the carriers act or any other stimulus programs that some of the operations you have overseas.

Oh, yes, we actually did based on the qualification criteria that was put together by the Sta. Originally we applied on the seventh of April which is pretty early.

For that particular, Paul a program and we believe that there was enough uncertainty at that point in time back in early April around the economic impacts of Cobot 19 that we that we qualified for the program.

However, the Sta issue further guidance on the qualification criteria later in the month and specifically for public companies and we rapidly.

Repaid the entire alone as a result of that within days. So we did apply we received alone they change the criteria and we returned along very quickly.

And we haven't looked at alternative countries equivalent regimes. So.

So that's the answer to that question.

Okay. Thanks, and lastly, Kevin can you remind me what how much you have available still on your credit facility.

Yes, sorry, we have 53 million available, it's a 90 million dollar credit facility and we have 37 million outstanding.

Okay, great. Thank you guys.

Thanks, Josh absolutely. Thank you.

Once again, if you have a question. Please press Star then one.

The next question will come from Kara Anderson with B. Riley FBR. Please go ahead.

Hi, good afternoon.

Hi, Kara.

And I'm just wondering if you can call out kind of the biggest factor behind the sequential decline in revenues.

Well.

I would say it has been.

When specifically for dice it has been the.

Change in the leadership, meaning that we did bring onboard our economic ski at the beginning of Q4 effectively of last year. He is making a lot of changes in the team structure in focus and training and discipline and accountability and we need a little bit more time to have that.

Actually take effect I'd also say that you know in terms of the actual quarter itself. Obviously, we did see some effect to the last two weeks.

The commercial accounts team initiative in my opinion looking at the first 10 weeks of the quarter was highly successful and well into the results were fully committed were actually convicted that this is the right strategy for us for the long term.

But in the Grand scheme of things about 20% of our bookings plan is associated with new business, creating new business relationships and it did slow down in those ladder AUD two weeks of March.

The good news is that no deals were lost but sales cycles have links and which in my opinion is pretty logical and this kind of timeframe. It makes sense. It's just harder to communicate with clients are there are usually more decision gates right now our customers are taking a conservative posture towards new relationships in general, but but the entry.

This was there and still is there and even with these longer sales cycles. We are we are keeping those relationships and moving forward in the sales cycle itself.

Okay, that's really helpful.

Then just wondering if you're beginning to see or hear any talk about supply and demand shifting in tank with the marking startup environment seeing lots of my Austin.

And whether or not maybe those engagement trends, we're seeing jobseekers.

Maybe early.

I just any thoughts around that.

So you're asking are we seeing an effect associated with all the startups.

Laying off there they're they're technologists.

Yes, I'm, just wondering if you're going to be a change in the supply of technologists versus the demand with.

It's really been unbalanced for quite some time.

Whether doesn't get yes, I understand it maybe an indication that Matt.

I think that we're seeing that right now I was just talking to Josh Vogel from Sidoti and he asked a similar question associated with Canada activity, especially on the dice platform we're seeing.

Improving trends in across registrations across our job views and applications and I think it's a combination of people that have been laid off in those areas that are associated with startups like Silicon Valley, Austin, Texas, Even New York City, but also just.

The uncertainty as the environment and the fact that your boss isn't looking over your shoulder no anymore and I work environment. When you want to go to the dice homepage. So all those things I think cumulatively are adding to our.

Candidate activity on dice.

Great. Thanks, that's it for me.

Ladies and gentlemen.

This concludes our question and answer session. So I'd like to return the call back to talk curves for any closing.

Thanks, everyone for your interest and DHL group to schedule, a meeting with management. Please email IR DHL group Inc. dot com or call to one two or four eight or 181. Thank you for joining our call today in aggregate.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

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