Q2 2021 DHI Group Inc Earnings Call
[music].
Good afternoon, and welcome to the D. H I group fiscal 2021 second quarter conference call all participants will be in a listen only mode.
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After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then 1 on your telephone keypad to withdraw your question. Please press Star then 2.
Please note. This event is being recorded I would now like to turn the conference over to Todd Kerley as M. K R. Investor Relations. Please go ahead.
Thank you operator, good afternoon, and welcome to Doj group's fiscal 2021 second quarter earnings Conference call with me on today's call are <unk>, CEO Art Daily and Chief Financial Officer, Kevin Boston.
<unk> and other filings with the Securities and Exchange Commission.
D H I undertake 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 adjusted earnings per share and that that that are not prepared in accordance with us GAAP information about and reconciliations of these non-GAAP measures to the most directly compare.
Arable GAAP measures are available in our earnings release and on our website at D. H I Group, Inc. Dot com and the Investor Relations section.
With that I'll have to turn the conference call over to our Daily C. O D H I group.
Thank you Todd good afternoon, everyone and welcome to our fiscal 2021 second quarter earnings Conference call. Thank you for joining us today.
Before we begin I want to remind everyone that we completed the spin off of a majority of R. E financial careers business on June 30th to the ERC management team.
With the disposition of ESC DHA is now solely focused on the technology career marketplace in the United States through our 2 brands dice and clearance jobs. We believe this focus will allow us to accelerate our bookings in revenue growth and further drive product excellence and both are remaining Platt.
Forms.
Turning to Dyson C. J I will provide highlights of the quarter and then I'll dig deeper into our sales performance and our expectations for increased revenue growth in the second half of the year.
I am pleased to report another strong quarter of bookings for D. H.
Our booking strengthened across all teams throughout the quarter and we ended the period with total bookings growth of 23% year over year.
Digital companies and the staffing and recruiting firms that service them will need tools like dice to find qualified candidates to fill these millions of new tech jobs.
As a result of this rebound in tech hiring we saw our dice bookings and revenue renewal rates increased substantially in the second quarter, our bookings for dice increased 25% year over year, and our revenue renewal rate increased to 89% a sequential improvement of 7 <unk>.
Percentage points versus first quarter.
As I've said before we spent 2019 and 2020 building a better product and now in 2021, we're capitalizing on that product innovation through accelerated sales and marketing efforts.
As a SaaS based business, our revenue follows bookings and with our solid bookings growth over the past several quarters. We expect our total revenue growth to increase throughout the remainder of 2021 and beyond as we continue to execute on our growth plan.
We have 2 large growth opportunities in front of us with dice dice commercial accounts is our largest white space opportunity with tens of thousands of companies in the United States looking to hire high quality Tech professionals.
The staffing and recruiting market opportunity for dice also remains significant as they are over 18000 staffing and recruiting firms in the United States alone and today, we service approximately 4000 of them.
We continue to focus our marketing spend on generating more qualified leads to fuel our new business teams growth both for commercial and staffing accounts and we've seen good results from this investment over the past several quarters.
We handily beat our targets for marketing qualified leads delivered to our new business teams during the quarter, which significantly advanced our new business bookings.
As a result, our days customer base has grown sequentially for the second conservative consecutive quarter.
The new client branding campaign, we initiated in the first quarter for dice with the tagline, where tech connect has driven significant increases in client traffic to our sites and has had a very positive impact on driving more marketing qualified leads it has been several years since we've actively marketed that.
<unk> brand and with the launch of dice marketplace. We're excited to make sure everyone knows about it.
We are in the midst of rolling out a new dice technologist branding campaign, which we expect will result in driving even more candidate traffic to our sites there.
Thereby increasing the value of our marketplace.
Now I'd like to turn my attention to clearance jobs.
C. J S second quarter revenue grew 15% year over year and their sales team performed well during the quarter with bookings growth of 17% over the prior year.
The revenue renewal rate for CJ remains very healthy at 97%.
The strong bookings we saw in the second quarter gives us confidence in CJS continued revenue growth.
Also we continue to work hard on expanding <unk> addressable market by making direct sales to U S government agencies in.
In the second quarter, we signed contracts with the Department of Navy Lawrence Livermore Labs, and the Federal Bureau of investigation.
The market opportunity for CJ with government agencies is largely untapped and we see it as a significant growth opportunity as we move forward.
Speaking of the significant opportunity for growth ahead for both dice and CJ. This quarter. We added 2 new sales leaders and we have added 16, new sales positions. So far this year, increasing the team's strength by approximately 20%.
We have created the industry, leading online marketplaces for matching companies with the highest quality tech professionals and we believe we can capitalize on the millions of new technologist positions being created over the next several years.
The success, we've had to date executing on our business plan gives us confidence in our ability to continue to grow revenue, which we believe will steadily increase each quarter as we move through the remainder of this year.
We look forward to sharing our progress throughout the rest of 2021.
And 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.
As art mentioned, we spun off 60% of the <unk> business to ESC management on June 30, and retained a 40% equity stake, which is recorded as an asset of $3.6 million on the balance sheet.
As a result of this transaction for all periods presented AFC will be shown as discontinued operations and will no longer be consolidated with <unk> operating results.
Bookings revenue and operating expenses, along with deferred revenue and our committed contract backlog that we will be discussing today include the continuing operations of the business, which are the dice and clearance jobs brands.
Lastly, the assets and liabilities of AFC for prior periods will be shown as separate line items on the balance sheet.
With that summary, let me move into the financial results for the second quarter, We reported total revenue of $28.7 million, which was up 4% year over year.
Bookings for C. J were $7.6 million up 18% year over year. We ended the second quarter with 1784, CJ recruitment package customers, which is up 2% sequentially and up 8% year over year, our average monthly revenue per.
For CJ recruitment package customer was up 2% sequentially and up 3% year over year to $1394 or $16728 on an annual basis.
Similar to dice over 90% of CK revenue is recurring and comes from annual contracts.
Our CCA revenue renewal rate was 97% for the second quarter up 8 percentage points from 89% last quarter and up 4 percentage points year over year, our CJ customer count renewal rate renewal rate.
84% up 2 percentage points from last quarter and up 8 percentage points when compared to the same period last year. These.
These positive metrics demonstrate the value CJ delivers and the recruitment of cleared professionals.
Turning to operating expenses second quarter operating expenses of $21.6 million was up $100000 year over year, while we have cost savings in areas such as travel office and other G&A. We are continuing to invest in the sales team and are increasing the spend.
For our third party marketing programs.
The company recorded an income tax benefit from continuing operations for the quarter of $61000 on a loss from continuing operations before taxes of $273000, our effective tax rate for the quarter of 22% approximates our expected corporate tax rate.
The book loss on the sale of the FC does not have a current tax benefit to the company.
We recorded a loss from continuing operations for the second quarter of $200000 or approximately breakeven on a per diluted share basis compared to income from continuing operations of $1.2 million or <unk> <unk> per diluted share a year ago.
This quarter's loss from continuing operations was negatively impacted by $1.1 million, which primarily related to the transfer of the <unk> business loss from the equity security and discrete tax items.
Last years income from continuing operations was negatively impacted by $100000 in severance and related costs.
Adjusted diluted earnings per share for the current quarter was <unk> <unk> compared to <unk> for the prior year quarter.
Net loss for the quarter of $32 million was negatively impacted by a loss from discontinued operations of $30 million. The loss primarily consisted of $28.1 million related to the write off of the cumulative foreign currency translation of FC.
This was previously included in stockholders equity as accumulated other comprehensive loss.
Adjusted EBITDA for the second quarter was $7.1 million a.
A margin of 25% compared to $6.1 million and a margin of 22% in the second quarter of last year.
We generated $12.9 million of operating cash flow in the second quarter compared to $7.1 million in the prior year quarter.
The improvement was driven from both more billings and more timely payments from customers in the current year.
From a liquidity perspective at the end of the quarter. Our total debt was $16 million, we had $7.9 million of cash, resulting in net debt of $8.1 million.
Deferred revenue at the end of the quarter was $43.2 million up 7% from the second quarter of last year. When we add the unbilled portion of our contracts to deferred revenue. Our total committed contract backlog at the end of the quarter was $75.1 million, which was.
Up 26% from the end of the second quarter last year.
Short term contracted backlog that is revenue to be recognized over the next 12 months is $64.6 million, an increase of $7.9 million or 14% from the prior year.
During the quarter, we repurchased approximately 530000 shares for $1.8 million, an average price of $3.30 per share.
In June our board authorized an additional $12 million for stock repurchases, increasing the overall share buyback program to $20 million and extending it through June of 2022.
$2.2 million has been used to date, leaving $17.8 million available under the program with.
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 in 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.
Looking forward with the strong bookings performance over the past 3 quarters, we expect year over year total revenue growth to increase throughout the remainder of 2021.
For dice, we're seeing strength, both in our staffing and recruiting business and with our commercial accounts as customers realize the value of our platform and meeting their hiring needs.
With regard to clearance jobs, the strong bookings performance CJ had in the second quarter, along with the opportunity we see in the direct government agency market gives us confidence that its revenue growth will be consistent with previous periods.
From a profitability perspective, we will continue to operate the business to adjusted EBITDA margins at or near 20% as we balance our delivery of strong financial performance with sales and marketing investment.
We are excited by the positive momentum, we're seeing in bookings and believe our continued investments in product innovation marketing and our sales team will continue to drive sustainable long term revenue growth and with that let me turn the call back to art.
Instruments and Rollouts of dice in just in internal resources in general and should ultimately lead to some leverage in operating efficiencies.
So I think it's exactly as you described.
Without UFC and the complexity of UFC recognizing that it operates across 18 different countries and 4 different languages and multiple sales teams I think we have the ability to be much more focused in our approach.
For territory management inside of the United States across dice and clearance jobs I do believe that now we can take the full.
Leverage of our engineering and product teams and bring them to bear just for dice and CJ alone. So that was part of the strategy quite frankly and as I've explained in past.
Conference calls, we do believe that the financial sector is going to be under duress at least in the U K and Hong Kong. The 2 major markets that are <unk>.
Territories for quite some time to come so we think that all in all we made the right decision to make the separation effective on the 30 of June and now we do have that real focus on technology as a sector, the United States as a geography, and making sure that we really get to product excellence for.
Both dice and C J.
I appreciate those insights thank you.
You mentioned hiring.
I think it was 16 or 18 total and the sales efforts year to day and I was just curious that expectations in the back half of the year and then maybe when we think about internal investments going forward.
Whether they are targeted head count additions more on the marketing side.
I'm curious 2 part I apologize 1 of the sales reps that you hired year to date, how are they performing relative to expectations. It sounds pretty good but just wanted to hear more thoughts on that and secondly, how should we think about the sales from getting.
Operating expense line.
Should it get back to the quarterly run rate, we were seeing in 2019 or will it still remain below that thank you.
So let me cover off the first part of your question, Josh and then ill leave Kevin to answer the question about how to think about.
Sales as an expense, but I can tell you that the sales team members that we've brought on board are definitely meeting and exceeding expectations generally speaking for a quota bearing sales rep. The ramp time is 9 months. So they are not expected to get to full quota attainment until that ninth month, but every.
Body is doing marvelously, well and so when I think about the remainder of the year, we're actually continuing to add sales reps. We have added a number of marketing resources already this year and have a pretty stable marketing team were also looking for a lot of technologists ourself.
And so if you go to the <unk> group.
<unk> page you'd find that roughly speaking we're looking for.
Dozens of people right now largely in technology, but continuously and sales as well so Kevin I'll, let you speak to the the sales expense items.
Yes.
Thanks for your questions Josh So the way we look at the business.
Since but can that adjusted EBITDA margin get back to pre pandemic levels is that something that we should be expecting next year and certainly beyond.
And I would say from our perspective.
Towards the end of next year, and then beyond our goal right now is to make our investments in sales and marketing to drive that top line to drive bookings, which manifests itself in top line revenue growth kind of call. It 3 to 6 months out so 1.2 quarters out and so.
Our business model clearly has operating margin and so we would expect EBITDA expansion to occur.
12 to 18 months and beyond but at least in the near term, we're really focused on making those investments, but clearly we've got the ability to to achieve margins that other HCM and other SaaS companies have in the marketplace.
Alright, great. Thank you for that.
Just shifting gears, a little bit really impressive bookings performance.
I'm just curious when were looking at last year I know you've made some changes with customers and prospects.
Operating monthly or quarterly type of.
Of contracts I'm, just curious about the breakdown we saw in Q2 are mostly annual goal.
Are they short term are you seeing more multi year come in I'm, just curious about that mix.
Yes, Josh we definitely are seeing more multi year contracts and that's what you see when you look at our total contracted backlog being up significantly, whereas our short term backlog is up a smaller percentage. So you have that 26% versus the 14%.
That difference is really those multiyear contracts that we've been signing over the past year or so so we are definitely getting traction and those multiyear contracts.
Add that your question about the.
<unk>.
The payment terms remained stable roughly about 70% of our contracts are signed such that they are paid upfront within net 30 terms.
Alright, great and just lastly, and I'll hop back in the queue, just any comments around booking trends through the first 5 weeks of the quarter relative to how.
You said a build that.
It was building month to month through Q2, so I'm curious on the first 5 weeks of looking thank you.
Still very strong across all of our teams and obviously as we should be concerned about the delta variant, but we're not seeing any kind of response by our customers that would indicate that they are slowing their hiring based on what's happening right. Now. So all is good for right now for the first 5 weeks.
Sounds great well. Thank you guys for taking my questions.
Thank you Josh.
Our next question comes from Zach humans of B Riley FBR. Please go ahead.
Hi, good afternoon, Thanks for taking my questions and congrats on the really strong results.
Yes.
Josh really asked a lot of the questions that I really wanted to touch on but I mean in terms of the renewal rates on the revenue side for dice.
Can you just talk about some of the aspects that drove the nice jump up we saw here sequentially.
Is this something that you think can be a sustainable level in terms of revenue retention for dice moving forward.
Yes.
Speak to both of those points and then I'll ask Kevin to add.
Add along his comments I would say that what we're seeing is there is obviously a very high demand for hiring right now and I think it's a pent up demand associated with suppression in 2020.
But I would tell you. We also see the additive effect of putting an auto renewal language in our contracts as a standard back in May of 2020, So that auto renewal language comes with an escalator provision and that's helping us as well as a tailwind, but it's both I would say the <unk>.
<unk> as well as the fact that the auto renewal language now gives us a lot of leverage in our discussions with clients.
And the only thing I would add on that Zack is we also have been continuing to improve our account management team.
By way of things like instituting quarterly business reviews at 1 point. It was the top 100 customers now its the top 200 and it continues to expand so our touch points with our customers are becoming more frequent and where it's not only touch points, but it's also making sure that all of the new features that we develop they know how to use.
Those that are aware of them. They are using our tool. So we've restructured that account management group, probably about a year ago, where we changed the way they interact with our customer and we've seen some really positive benefits to that as well.
Understood. That's helpful and just final question from me I mean can you give us a little more insight into the product roadmap for both dice and clearance jobs as we go forward from here.
Absolutely so.
With dice I would say that we are continuously a day.
<unk>, what we consider to be the marketplace core features meaning.
Talent search as the most important value proposition inside of our site. It's our matching technology is the ability to essentially put in a full job posting and have the best possible matches against the candidates in our database, but also other parts of the experience associated with the recruiter and the individual Kinsey.
Profiles. This next quarter, we're spending a lot of time with Etfs integrations. So.
We're going to be able to announce several partnerships that we have with ETS is where there's a deeper integration with the dice database.
And then with clearance jobs clearance jobs legitimate we in my opinion is about 3 years ahead of the rest of the market including dice.
And they continue to focus on.
I would say video enablement as a core kind of stepping stone to the future on a steppingstone to attract the right kind of candidates. So we are going to see a lot more video content creation inside of the CJ platform because that's what the world is used to these days.
That's especially important for certain age cohorts that we want to track. So I think those are the top level ways that I would describe our product roadmap for both dice and C. J, but it's a very exciting time and I would tell you that.
<unk> is continuously following the successes that we see in CJ. So CJ still essentially is our testbed for innovation very excited about all the different progress that they've made over the past 18 to 24 months.
Understood Thats, great to hear willful. Thanks, again for taking my questions and congrats again on the strong quarter.
Thank you so much.
That.
This concludes our question and answer session I would like to turn the conference back over to Art Bailey.
For any closing remark.
Thank you very much everyone for your interest in <unk> group and thanks for joining our call today have yourself, a wonderful remainder of the week.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.