Q4 2020 DHI Group Inc Earnings Call
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Good day and welcome to the DHT Group, Inc. Fourth quarter and year end 2020 financial results all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be and opportunity to ask questions to ask a question. You May Press Star then one. Please note that this event is being recorded I would now like to turn the conference over to Todd Curly MK or Investor Relations. Please go ahead.
Thank you operator, good afternoon, and welcome to day, H I groups fiscal 'twenty and 'twenty fourth quarter and year end financial results Conference call with me on today's call are D. H I C E O Art, Bailey, and Chief Financial Officer, Kevin and Boston.
Before I turn the call over to art I'd like to cover a few quick items. This afternoon D. H I issued a press release announcing its fiscal 'twenty and 'twenty fourth quarter and full year financial results. This release is available on the company's website at D. H I Group, Inc. 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.
And 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 section 21 E.
And as Exchange Act of $19 34.
When used the words anticipate believe expect intend future and other similar expressions identify forward looking statements.
These forward looking statements reflect 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 and any forward looking statements.
Factors that could cause these forward looking statements to differ from actual results include delays and development marketing and sales the adverse impact of and uncertainty surrounding the COVID-19, pandemic and other risks and uncertainties discussed and the company's periodic reports on form 10-K, and 10-Q and other filings.
The Securities Exchange Commission.
C. H I 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 net debt that 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 and our earnings release and on our website at D. H I and group, Inc. Dot com and the Investor Relations section.
With that I'll now turn the conference over to our Daily C. E O D H I group.
Thank you Todd good afternoon, everyone and welcome to our fiscal 2024th quarter and year end earnings Conference call. Thank you for joining US today I hope that everyone is staying safe and healthy.
Like to start my comments by providing some detail around how we finished the year and some of the accomplishments. We achieved during 2020 after that I'll provide an update on what we're seeing now and how our efforts. This past fiscal year have more effectively positioned us to grow our business going forward.
Starting with the fourth quarter I am pleased to report that we finished the year with strong bookings for dice in December.
And solid performance with continued momentum in January.
<unk> and January our two largest renewal months for dice and combined they represent almost 30% of our total bookings for dice and any given year.
We also saw our dice revenue renewal rate increased significantly from 66% last quarter to 75% this quarter with that rate increasing further still towards the end of the quarter. This gives us increased confidence and the rebound for our business as we enter the new year.
Surveys during the fourth quarter from two independent industry research firms the staffing industry analysts.
And the Tech served alliance reflect the continuing recovery trend throughout the staffing sector and confidence that tech hiring will continue to rebound in 2021.
Also comp Tia using bureau of Labor Statistics data reported that the tech industry showed job growth of 391000 positions in December even as the U S. As a whole loss of 140000 jobs.
Several commentators are calling 2021 the year of the great rehiring.
It's clear that the worldwide effort to digitize and move businesses online will require.
Require technologists and there is no doubt. These efforts will result in a worldwide search and digital jobs over the next several years occur.
According to a Microsoft Survey released last summer worldwide digital jobs are expected to grow from $41 million in 2000 $20 million to $190 million in 2025.
Companies and the staffing and recruiting firms that service. These companies will need tools, such as ours to find qualified candidates to fill these new tech jobs.
As we continue to execute on our plan to create the best Tech focused career marketplaces, using our technology skills data model and we stand well positioned to capitalize on this explosion and hiring of technologists over the next several years.
Now, let me quickly recap some of our accomplishments this past fiscal year.
During 2020, we continued our fast paced and innovation, we launched several marquee product releases across dice clearance jobs and UFC, bringing best in class marketplace features to all three brands and.
Our continued innovation is driving our product leadership in the space and has resulted in solid increases in technologist engagement, including 11% growth year over year invisible candidate profiles, and 47% growth year over year and candidate applications on the dice platform.
We also implemented new sales processes methodologies and forecasting driving improvements to better address market opportunities and our clients' needs and.
We increased our focus on client success through new leadership and technology and the second and third quarters, which has resulted in higher renewal rates with our existing customers in the fourth quarter.
Last but not least we were able to reset our entire financial budget within weeks of the start of the pandemic. So we could maintain our EBITDA goals throughout 2020.
Team members globally, United to implement expense management policies to ensure achievement of our cost savings goals, while at the same time, not losing sight of executing on our long term growth plan.
As we enter the new year, we believe we have emerged from 2020, a better company, we've invested smartly and our products and sales resources to allow us to capitalize on the multiple growth opportunities in front of us and.
And as I will discuss later, we are planning to accelerate our investment and sales and marketing and 2021 to drive long term revenue growth.
Now, let me touch briefly on our sales performance during the fourth quarter.
Bookings were slow at the beginning of the fourth quarter, but as I mentioned earlier the improved dramatically at the end and this strong performance was followed by continued positive momentum in January we.
We saw a significant rebound and our renewal rates and two of our three new business teams reached or exceeded the pre pandemic level of bookings production for the quarter.
One of those teams was our dice and <unk>.
C or staffing recruiting and consulting new business team as.
As I mentioned before the need for technologists is expected to grow significantly and the new post pandemic economy and rebounded basis Src business in the fourth quarter is a positive indicator of that trend.
We believe dice is a necessity for staffing and recruiting firms focused on serving the tech and history Src market opportunity for dice remains significant.
While data is over 4000 and Src customers today, there are over 18000 staffing and recruiting firms and the U S alone, leaving us significant room for growth.
As such we shifted sales reps today since Src, new business team and the fourth quarter to capitalize on this opportunity and while these new reps are still ramping up we are excited about their contribution and the quarters to come as we look to further penetrate the large src market.
On the dice commercial accounts front, our team continues to experience longer sales cycles as many large enterprises went into a cost cutting mode. During the last three quarters of 2020 and are still solidifying their hiring plans for 2021.
With that said the dice commercial teams and pipeline of deal activity has continued to grow and both the fourth quarter of 2019, and the first 10 weeks of the first quarter of 2020, the commercial accounts and new business team exceeded their bookings plan and we believe they will once again and be a growth dry.
Aver as the economy.
Further commercial accounts still represents our largest opportunity for growth is there are tens of thousands of companies and the United States that fit our ideal prospect profile.
Based on our burning glass feed there are about 2000 companies that have more than 20 open tech job postings and right now companies like Amazon anthem, Blue Cross and Ernst and young Pfizer and general dynamics all have over a 1000 active tech jobs posted today we are.
Focusing our commercial accounts team on these companies that are growing and the current economy.
First Jonathan.
The other and it outperformed our bookings quota during the quarter and we also added sales resources to this team during the fourth quarter.
Gross jobs has been relatively unaffected by the pandemic as evidenced by its full year revenue growth of 17% year.
Year over year, we continue to work hard on expanding <unk> addressable market by moving beyond our government contractor customers and making direct sales to U S government agencies D.
T J signed several initial deals with government customers in 2020, and we expect them to add more in 2021.
The market opportunity for C. J with government agencies is largely untapped and we see it as a significant growth opportunity as we move forward.
Lastly, our E financial careers brand continues to be challenged.
It is still being affected by the protests and security laws imposed by China, and Hong Kong, which had been its fastest growing market.
Also there is continued uncertainty in the UK <unk> largest market because the Brexit agreement that was recently signed did not address the future of the financial services industry there.
And there was no question that this uncertainty has weighed down and <unk> performance to date and we'll continue to do so for the foreseeable future.
As such during the quarter, we took action to reduce the size of our FC organization.
And start the process of spinning out and this business to the FC management team, which is expected to officially take place around mid year.
We believe this strategy will allow us to show positive revenue growth, we expect to see with our remaining dice and CJ brands as well as allow <unk> to be a nimbler more entrepreneurial competitor and its markets.
Looking forward due to the success, we're seeing and both dice and CJ staffing and recruiting new business teams. We're planning to begin hiring even more new sales reps for these two teams this quarter with our industry leading product offerings. We believe the time is right to add more sales resources to these teams as we look to cash.
Capitalized on the expected growth and technology jobs over the next several years.
We are also planning to focus more of our marketing spend in 2021 on generating more marketing qualified leads to fuel our new business teams growth during.
During the fourth quarter, we started by shifting the mix of our marketing spend from candidate generation to focus more on creating marketing qualified leads and we were able to successfully scale, our MQ oil production across all of our new business teams during the quarter.
Now that we've built industry, leading marketplaces for tech professionals. We also plan on launching targeted brand awareness campaigns in 2021.
In 2019, and 2020, we built a better product 2021 will be the year, we capitalized on that product innovation through increased sales and marketing efforts.
Before I turn the call over to Kevin I would like to highlight the continued high pace of product innovation from our product development teams during the fourth quarter.
Significantly only four months after the release of data.
While approximately half of our 30000 active recruiters on the platform have created their own profile. This is great validation of the value of our marketplace concept.
Additionally, during the fourth quarter, we took another major step and the evolution of the dice marketplace, introducing dice instant messaging.
A comprehensive and flexible platform through which recruiters and candidates can rapidly and confidently communicate in real time, Inc.
And the message.
Replace connection tools to help recruiters drive continued engagement with candidates for current and future roles and for candidates to have direct and private conversations with recruiters.
Launched in late November 2020 over 30000 and messages have already been sent through the day instant messaging platform and this number continues to grow exponentially.
As always clearance jobs also had important new releases and the quarter with the launch of self serve brand and which allows employers to customize the branding of their jobs and real time.
TJ also released can debt search cash and messages upgrades.
Where employers can search and find prospects or broadcast messages by adding tags tags are critically important to recruiter workflows and are the brains behind CJS suite of talent pipelining and messaging tools.
Service jobs continues to be our testbed for innovation.
As I conclude my remarks, I want to reiterate that we have created industry, leading online marketplaces for matching companies with the highest quality tech professionals and with these marketplaces. We believe we can capitalize on the millions of new technologist jobs expected over the next five years, we are confident and our business plan.
And the continued progress we are making towards achieving our goal of driving revenue growth and.
And we look forward to sharing our progress throughout the rest of 2021 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.
Start by going through the financial results, then add a few comments about the business.
The fourth quarter, we reported total revenues of $33 $2 million, which was flat with the third quarter and down 12% year over year.
Dice revenue was $19 4 million and the fourth quarter down, 2% sequentially and 17% year over year.
We ended the fourth quarter with 5150 dice recruitment package customers, which is down 3% sequentially and 14% year over year. Our average monthly revenue producer for dice recruitment package customer was down 2% versus the year ago quarter.
$1120 or 13000 and $440 on an annual basis.
Over 90% of dice revenue is recurring and comes from recruitment package customers.
And our dice revenue renewal rate was 75% for the fourth quarter up nine percentage points from 66% last quarter, but down six percentage points year over year.
Our dice customer count renewal rate was 68% up five percentage points from last quarter, but down two percentage points when compared to the same period last year.
As art mentioned the tech jobs market continues to show signs of a rebound, especially as it relates to our staffing and recruiting business, which is driving the improvement and our dice renewal rates.
And our client success organization continues to focus on improving its processes around onboarding and ongoing touch points that we believe have positively impacted both our customer and revenue renewal rates.
Clearance jobs fourth quarter revenue was $7 6 million increase of 4% sequentially and 15% year over year.
This continued solid double digit revenue growth year over year is reflective of clearance jobs strong innovative product and competitive differentiation as well as the somewhat insulated market. It serves.
Fourth quarter revenue for E financial careers was $6 $2 million, which was up 1% sequentially, but down 23% year over year, when excluding the impact of foreign exchange rates and.
And the UK, which is our largest geography by revenue from EMC, we continued to be impacted by Brexit and its recent agreement, which did not address the future of the financial services industry and the UK.
And the APAC region, <unk> second largest geography, we continue to be affected by protests and the security laws imposed by China on Hong Kong.
Turning to operating expenses.
Fourth quarter operating expenses were $31 4 million, representing a decrease of $1 9 million or 6% year over year.
The decrease in operating expenses is the result of continued discipline around our cost structure as well as being more efficient with our third party marketing spend.
The company realized and income tax benefit for the quarter of $400000 on income before taxes of $1 6 million. The income tax benefit was driven by discrete tax items, including the reversal of liabilities for uncertain tax positions as federal and state statutes.
Aspired.
Our effective tax rate for the year of 7% was different than our expected statutory rate of 25%, primarily due to nondeductible impairment charges and the allocation of loss between jurisdictions.
We reported net income for the fourth quarter of $2 million or four cents per diluted share compared to net income of $3 5 million or seven cents per diluted share a year ago.
This quarter's net income was positively impacted by $400000 related to the discrete tax items, partially offset by severance and related costs.
Last years net income was positively impacted by $400000 from discrete tax items.
Adjusted diluted earnings per share for the quarter was three cents versus <unk> last year.
Adjusted EBITDA for the fourth quarter was $7 million, a margin of 21% compared to a margin of 23% and both the third quarter of this year and the fourth quarter of last year.
As we've stated before our goal is to manage the business to approximately 20% adjusted EBITDA margins.
We continue to focus on supporting our customers as well as investing in sales marketing and product.
And so being being equally mindful of the overall cost structure of the business, notably around headcount marketing and other third party spend.
We generated $4 2 million of operating cash flow and the fourth quarter compared to $3 9 million and the prior year quarter.
From a liquidity perspective at the end of the quarter. Our total debt was $20 million, we had $7 6 million of cash, resulting in net debt of $12 4 million.
As we mentioned before during the first quarter of 2020, we borrowed $25 million from our credit facility to ensure we had sufficient liquidity to manage through the pandemic. We now have better visibility into cash flow and as a result, we paid down $17 million of debt under our credit facility during the fourth quarter.
Deferred revenue at the end of the quarter was $43 5 million compared to $51 6 million and the year ago quarter.
This decrease year over year is due to lower bookings and more contracts, having monthly or quarterly payment terms and when.
When we add the unbilled portion of our contracts to deferred revenue our committed contract backlog at the end of the quarter was $76 $3 million, which was down 14% from the end of the fourth quarter last year.
During the quarter, we repurchased approximately one 2 million shares for $2 $5 million or an average price of $2 nine per share.
In total we have used approximately $3 9 million of the current $5 million buyback program.
We continue to believe the buyback is a recognition of the long term prospects of our business and the undervalued price of our stock.
Consistent with our previous programs, we will continue to evaluate investment opportunities and the business against buying back shares while also using the buyback program as an opportunity to offset the impacts of our employee equity incentive program.
As we look ahead bookings are improving for the company as a whole.
And as art mentioned for dice, we saw a significant increase in bookings and December and January as companies continue to increase their use of technologists, we're seeing strength and our staffing and recruiting business as these firms realize they need our technology to do their job effectively.
With regards to clearance jobs, we expect them to continue to grow because their success is correlated to the U S Department of defense budget, which relatively speaking has been immune to the environment, we find ourselves in.
For financial careers, we continue to expect significant headwinds as our two largest regions the UK and APAC continued to be impacted by Covid.
Ongoing geopolitical issues and Hong Kong as well as the potential impact of hiring and the banking sector due to Brexit.
Looking forward, we believe we have the right ongoing cost structure in place to operate the business and to support our customers. While at the same time, continuing to invest and areas that drive long term revenue growth.
While not providing specific guidance, we continue to manage the business to adjusted EBITDA margins and the 20% range and believe we will see year over year revenue growth and the second half of this year.
Let me sum up by saying that we are excited by the progress we made in 2020 and believe the investments we have made and product innovation and sales will drive long term revenue growth. We remain focused on the continued execution of our business plan and look forward to reporting on our progress throughout 2021 and with that let.
Turn the call back to art.
Thanks, Kevin and I'd like to close by once again thanking all of our employees around the globe for their hard work this last quarter and throughout this past challenging year. It is a pleasure to be part of such a great team with that we're happy to take your questions.
Okay.
We will now begin the question answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
And our first question today will come from them on Glennie with B Riley. Please go ahead.
Hey, guys. Thanks for taking my question and.
And access TV and improvement and renewals. So I wanted to ask about that given the trajectory and pick up and hiring and the tech sector do you see that momentum continuing into February and March and I know Jan and December your strongest from middle month, but.
I figured.
Given the pick up and hiring do you think that momentum will continue and where do you see.
On the renewal rate being towards the end of the first quarter.
So I can give you my perspective here I'm on and it's great to.
I hear your voice I just wanted to say that in my opinion, we don't have enough data to really call February obviously, just being at the very beginning of February but it felt like we had a shift at the end of November due to the confidence around the vaccines and so if I look at the entirety of the pandemic.
Period last year, we saw a high correlation between bookings and co.
Cool.
And People's just overall confidence and confidence.
Confidence I would say markedly increased as a result of that.
Delivery of the vaccine is the approval of the vaccines the initiation of the distribution of the vaccines.
Where I think we should be on a healthy basis.
Over the long term and hopefully Q1 is above 80% revenue renewal rate.
But Kevin do you want to add anything any more context to that.
No I think you've covered it alright.
Great. Thank you that's helpful and then.
Regarding the potential spinoff of E financial careers.
You mentioned that you expect that to happen.
And the second half, but how should we think about.
And the overall margins of the business once that spinoffs happens.
Yeah, I'm on I would say the <unk>.
<unk> will likely be similar to what we see today.
We're actually going through that process right now.
Right now as you would expect Dfc does benefit from the infrastructure within the broader dice DHA organization. So I would not see and expect a material change and margins for that reason, but it's actually something that we're spending time going through as I mentioned.
Got it thanks, and then the last question from me.
Can you talk about how the new administration might impact does the job market for individuals who have security clearance and do you see the new.
Administration as an overall positive for clearance jobs.
I personally think that it's neutral I think that Biden is strong on security and isn't.
As in favor of a strong and healthy military budget. There is a view that he might have to look for places to cut budget because of his additional visionary plans from what he wants to do with the climate and other things, but I can't personal and you see that coming from the military budget.
And I do think just his years of service inside of the Senate and and various committees.
Has put them on a position where he is strong on the military for the United States.
Okay. Thank you I'll pass it on.
Thanks, Ron I appreciate the time today.
And once again, if you'd like to ask a question. Please press Star then one.
Our next question will come from Josh Vogel with Sidoti. Please go ahead.
Hey, Josh Good afternoon, Kevin how are you guys.
Awesome I'll, let yourself right.
Great. Thank you.
And just understanding that you and continue to operate.
And adjusted EBITDA margin.
Around 20% and.
You don't expect any material changes to margins. Once you have <unk> has spun off so is it fair to assume given the expected step up in revenue and the second half of the year.
At dice and C J and the operating leverage that's built into your model that we can see a step up and the adjusted EBITDA margin is as well, perhaps like to those mid 20% levels that we saw on parts of 2018.
Yeah.
Yes, Josh.
I would say partly true however, our goal as.
As we get more momentum on the booking side and we have kpis.
<unk> and increase in spend for sales and marketing that we will continue to invest and that part of our business that is a direct expense and a hit to margin so as.
As we continue to see the bookings grow and the benefits to revenue. We do anticipate that we will continue to invest and the business at least in the near term.
Okay and that kind of leads into my next question thinking about budgeting for 'twenty, one and when you think about investments in product development as well as internal engineers and head count how should we think about that relative to prior years.
Yes, I would say that would generally I would expect that to be flat.
With prior years as art mentioned.
And 19 2020 was really the year of product product improvement product innovation across the brands.
This year is really around the investment and sales and marketing.
I think we've also hit critical mass with our engineering team too. So we feel like we're in a good shape for the size of that team.
Okay, great and.
And kind of a random question thinking about <unk>.
Jay and sure of.
And nature of our contracts.
That is signed directly with the government agency any different when you're using a third party is the margin profile different at all.
What about the and the renewal process.
Is it different for direct government work versus when you're working with a third party and I noticed a huge white space opportunity that youre tapping into some just curious about the general dynamics there.
So I would say, we arent seeing any difference in margins and thats because ultimately we are selling to the government right off of rate card and.
So there is the opportunity to discount from rate card, but it's kind of a thin band and so we're not seeing anything substantial between pricing for the government and pricing for military contractors.
Okay and then.
This one.
And just kind of.
Out there you know you do the <unk>.
Quarterly surveys.
And if all of this information at your fingertips with regard to who needs.
What type of technologists, and where and when the salaries and I was just wondering is there is there an opportunity here for you to monetize this data and if so how would you do that.
We'd give thought to that but not enough I would say that that is kind of a future state for us being able to really say that just because we've been operating for 30 years, we've been watching.
And people.
And we'll candidate.
<unk> of $9 million inside of our database evolve and see how they actually interact with jobs there might be something in that data that allows us to essentially better inform clients as to how the how to represent themselves with job postings.
But we haven't really cracked the code on that yet thats something in the future I would say.
Okay, Great and just.
Last one.
And just notable seasonality around renewal rates for CJ and UFC I know you.
And what does this day, so I'm just curious the others.
Yes, they are similar.
I would say.
In that neighborhood.
High 20%, 30%.
So pretty much a same cycle is what we see at dice.
Okay, great, but it's nice to see the improvements and the business, especially as Q4 progressed and I. Thank you guys for taking my questions.
Thank you much Josh I appreciate it Josh.
And our next question will come from build to sell them with tightened capital. Please go ahead.
Thank you and your call.
Cost of revenues was up in the fourth quarter versus last year, and yet revenues were down and down slightly what what led to that disconnect.
Yeah.
Yes, so there what we did within our cost of revenue is what we call our client success organization, which is.
The people who have ongoing conversations with all of our accounts they have quarterly business meetings with them, they're checking and theyre looking at their statistics et cetera, and so as we made that comment that that client success organization. We brought in new leadership and Theres, a lot more touch points with our customers and so.
That is that is expense and so that comes on to our revenue onto our income statement sorry and.
And advance of actually seeing the benefit of that Bill as we talked about we actually did see improvement and our customer.
And revenue renewal rates and the fourth quarter and we think.
Some of that a lot of that is driven by that improved client success organization, but youre seeing that expense prior to seeing the benefits of the revenue.
Great. Thank you.
And and then secondarily a remedial question what leads to the change in and dice average monthly revenue per customer is that simply a function of the.
The size of the customer and the number of seats that they are buying and and discounts and therefore it is a it's a mix issue or is there some other factor.
Now it is really a mix issue it basically comes down to.
The 5100 customers, we have 5200 customers, we have and their size, what theyre buying and just it's an average across all of them and so.
Coming down two percentage points is simply.
We may just have had.
A couple of additional smaller customers sign up this particular period or the bigger customers and increase but it is it's.
It's just broadly across our entire portfolio and I would say with a 2% swing.
I think from our perspective.
That is I don't want to say immaterial, but its not something right now that we are worried about I mean, clearly we do want to grow the size of our average contract with our customers and we think we're in position to do that.
Great. Thank you Kevin.
Absolutely.
And once again and if you would like to ask your question. Please press Star then one.
This will conclude the question and answer session I would like to turn the conference back over to management for any closing remarks.
So we greatly appreciate everybody's attention.
Attention to our performance results for not only the fourth quarter, but also 2020 as a whole we're very excited about the future for DHA group and look forward to keeping you informed of our progress each quarter. This year. So thank you all.
Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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Okay.
And then.
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