Q1 2022 DHI Group Inc Earnings Call
Good day and welcome to the D. H I Group, Inc. First quarter 2022 financial results Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Please note this event is being recorded.
I would now like to turn the conference over to Todd Curley. Please go ahead.
Thank you operator, good afternoon, and welcome to <unk> group's fiscal 2022 first quarter earnings Conference call with me on today's call are D. H I C E O R J, Li and Chief Financial Officer, Kevin Boston.
Before I turn the call over to art I'd like to cover a few quick items. This afternoon <unk> issued a press release announcing its fiscal 2022 first quarter financial results. The release is available on the company's website at D. A shy group dotcom.
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.
Want to remind everyone that during today's call management will make forward looking statements that involve risks and uncertainties. Please note that except for the historical information statements on today's call may constitute forward looking statements within the meaning of section 21 E of the Securities Exchange Act of 1934.
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 in any forward looking statements factor.
Factors that could cause these forward looking statements to differ from actual results include delays in development marketing ourselves the adverse impact of an uncertainty surrounding the COVID-19 pandemic and other risks and uncertainties discussed in the company's periodic reports on Form 10-K, and 10-Q and other filings with the securities.
Orange Commission.
<unk> 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 adjusted EBITDA.
Adjusted earnings per share 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 in our earnings release and on our website at D. H I Group, Inc. Dot com in the Investor Relations section.
I'll now turn the call over to art Zaley's CEO Jay Traeger.
Thank you Todd good afternoon, everyone and welcome to our fiscal 2022 first quarter earnings Conference call. Thank you for joining us today.
I'm happy to report that we again delivered outstanding financial results for the quarter with total bookings growth of 32% year over year and total revenue growth of 29% as more employers are using our subscription based offering.
As demand for technologies continues to grow at a rapid pace.
Unemployment rate remains at an all time low.
Lawyers need our growing community of technologists, and our sophisticated tool set to find attract engage and higher the highest quality tech professionals.
During the first quarter U S employers posted $1 1 million tech jobs, 43% more than a year earlier, according to information technology trade group comp yet at.
At the same time. This is proprietary annual salary report, which we shared in January indicated that average check salaries increased six 9% from 'twenty to 'twenty to 2021.
A recent Mckinsey study gives some insight for these data points, explaining that due to the pandemic businesses have accelerated their digital efforts and technology initiatives by three to four years.
Furthermore, the report states that the pandemic had an even bigger impact on those companies focused specifically on digital products and portfolios accelerating their plans by seven years.
All of these activities require technologists to build platforms and products maintain and sustain tech infrastructure and to continue to drive digital efforts forward.
Nice and clearance jobs, our tech focused career marketplaces that attract the highest quality tech professionals and enable employers to find and engage these skilled candidates as they look to fill the millions of new technology jobs flowing into the U S economy.
Both sites use our proprietary skills mapping technology that was recently approved for patent was patent office, our skills mapping algorithms allow our clients to find and engage with the best Tech candidates for their open positions and provide a substantial competitive advantage for both dice and C. J.
Unlike general his career sites, we are solely focused on serving the technology market where candidates are measured on the technology skills that they have acquired over their career and not job titles.
Now, let me dig into both of our brand's performance during the quarter and where we see them heading.
Let's start with dose, which addresses our largest market opportunity.
Our bookings for dice increased 32% year over year in the first quarter and our revenue renewal rate continued to grow coming in at 104%.
All of this resulted in our dice revenue for the quarter, increasing 29% year over year.
Dice has two opportunities for expansion in front of it as it directly serve the growing market demand for technologists.
Dice commercial accounts is our largest white space opportunity with tens of thousands of companies in the U S looking to hire high quality Tech professionals. These.
These are companies like Bloomberg.
Blue Shield of California capital one Disney.
I E a craft and Walgreens that are all using our tool internally to find and engage the right technologists to fuel their digital strategies.
These tens of thousands of companies embarking on digital initiatives, an ideal target for our commercial accounts team to sell the dice career marketplace.
The staffing and recruiting industry is the second growth opportunity for dice with over 18000 staffing and recruiting firms operating in the United States.
Today, we service approximately 4000 of them, leaving us with a significant opportunity to expand in this client segment as well.
Combined we believe that these two clients segments have a total addressable market value of over $1 billion annually to.
To capitalize on these two large growth opportunities, we continue to add incremental new sales professionals during the quarter.
We also continue to increase our marketing spend to generate more qualified leads to fuel our expanding new business teams.
In the first quarter, our new business teams were successful in converting leads to new clients.
As a result, our <unk> customer base grew sequentially for the fifth consecutive quarter, adding 245 net new clients.
In addition to successfully driving new bookings through our improved sales and marketing efforts. We are also focused on generating increased brand awareness to further expand our technologists community by increasing the size of our dice brand advertising campaign.
With this campaign, we continue to see higher reach and engagement metrics on dice, adding 45000, new dice members each month to our growing community of technologists.
Now, let's talk about clearance jobs.
Our bookings for CJ increased 31% year over year in the first quarter and our revenue renewal rate remained strong coming in at 104%.
All of this resulted in our C J revenue for the quarter, increasing 27% year over year.
C. J also reached record you candidate registrations record candidate profiles record posted jobs and record messages sent on the platform during the quarter.
As with dice, we also have two growth opportunities for C. J.
The first is the government contractor market, where we currently have approximately 1800 contractor clients, but know that there are thousands more that can use our services.
P. J second opportunity for expansion is selling its subscription offering directly to the multitude of U S. Government agencies that are in need of highly qualified technologists and are competing against the private sector for these candidates. We continue to advance our relationships with both government contractors and U S.
<unk> agencies, adding several new clients during the quarter, including the National Reconnaissance office.
Aerojet Rocketdyne Honeywell.
Iron Mountain Lexisnexis special services and Spirit Aero systems.
C J sales and marketing teams continue to execute on our growth plans to further penetrate these two market opportunities as evidenced by their solid bookings growth during the quarter.
C. J was successful in adding 50 net new clients in the first quarter.
As we look ahead, we will continue to execute on our growth plan by increasing our investment and our proven sales and marketing engine as we look to capitalize on the growing market for tech professionals.
We have large addressable markets for both dice and C J and as I said before we're just scratching the surface.
You will see a constant increase in our sales team capacity. This year as we take advantage of our opportunities for sustained double digit revenue growth.
We will also continue to focus on creating the industry, leading tools for matching employers with the highest quality Tech professionals are Great example of this continued innovation is our recent release of time zone based candidate search.
He has over 35% of our job postings are now remote location allowed this is a key feature our clients have requested and we are the only career site that delivers this capability.
To summarize we believe that with our unique marketplace capabilities and tech focus DHA group can capitalize on the millions of new technologists jobs being created over the next several years by selling our subscription based offering to the companies government agencies and staffing and recruiting firms that will be looking.
To fill these jobs.
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 me go into a bit more detail on our first quarter financial results.
We reported total revenue of $34 3 million, which was up 2% sequentially and 29% year over year.
Total bookings for the quarter were $57 million up 32% year over year.
Dice revenue was $24 $6 million up 1% sequentially and 29% year over year.
<unk> bookings were $36 8 million up 32% year over year.
We ended the quarter with 6249 dice recruitment package customers, which is up 4% sequentially and up 20% year over year.
Our average annual revenue per dice recruitment package customer was $14100. This is up slightly both sequentially and year over year.
Approximately 90% of dice revenue is recurring and comes from annual or multi year contracts.
Our dice revenue renewal rate during the quarter.
104% up 13 percentage points from 91% last quarter and up 22 percentage points year over year.
Our dice customer count renewal rate was 86% consistent with the last quarter and up 15 percentage points from the prior year.
These metrics continue to demonstrate the strength of the tech job market and the value of the dice products and recruiting technology professionals.
Clearance jobs revenue was $9 7 million, which was up 3% sequentially and up 27% year over year bookings.
Bookings for C. J were $13 9 million up 31% year over year. We ended the first quarter with 1928, CJ recruitment package customers, which is up 3% sequentially and up 10% year over year.
Our average annual revenue per sigue recruitment package customer was $18400 up 3% sequentially and up 12% year over year.
Similar to date, approximately 90% of <unk> revenue is recurring and comes from annual contracts.
Our CJ revenue renewal rate was 104% for the first quarter.
Down one percentage point from 105% last quarter and up 15 percentage points year over year.
Our CJ customer count renewal rate was 87% down one percentage point from last quarter and up five percentage points from prior year.
These strong renewal rates demonstrate the continued value C. J delivers in the recruitment of cleared professionals.
Turning to operating expenses.
First quarter operating expenses were $33 7 million.
Compared to $26 $9 million in the year ago quarter.
As art mentioned, we are continuing to invest in the sales team and are increasing our marketing spend.
The increase in marketing spend and the ongoing strong performance of our digital marketing campaigns continued to drive increases in marketing qualified leads to support our expanding new business teams.
The company realized an income tax benefit for the quarter of $800000 on income before tax of $500000.
Our effective tax rate differed from our expected rate of 25% due primarily to an $800000 benefit from the best thing of shares associated with our equity based compensation program.
We recorded income from continuing operations for the first quarter of $1 $3 million or <unk> <unk> per diluted share compared to income from continuing operations of $2 million or.
Or <unk> <unk> per diluted share a year ago.
Adjusted diluted earnings per share for the current quarter was <unk> <unk> compared to zero cents for the prior year quarter.
Diluted shares outstanding for the FERC for the current quarter were $47 2 million shares compared to $48 6 million shares in the prior year quarter.
Adjusted EBITDA for the first quarter was $6 9 million.
Our margin of 20% compared to $5 6 million and a margin of 21% in the first quarter a year ago.
We generated $9 2 million of operating cash flow in the first quarter compared to $6 4 million in the prior year quarter.
The higher cash flow was driven by higher billings and collections associated with the increase in bookings.
From a liquidity perspective at the end of the quarter, we had $5 million in cash.
We had total debt outstanding of $33 million under our $90 million revolver.
Debt increased $10 million due to seasonal payments for bonuses and share repurchases to cover tax withholdings on employee shares that vested during the quarter.
Together these items totaled $9 $3 million, which is.
<unk> with our total debt increase.
Deferred revenue at the end of the quarter was $56 8 million up 27% from the first quarter of last year.
Our total committed contract backlog was $106 million, which was up 50% from the prior year.
Short term backlog was 87 $8 million, an increase of $25 2 million or 40% year over year.
Long term backlog that is revenue to be recognized in <unk> or more months was $18 2 million at the end of the quarter, an increase of 124% from the prior year.
During the quarter under our share repurchase program, we purchased approximately one 3 million shares for $7 5 million, an average price of $5 $70 78.
Per share.
As a reminder, our current share buyback program includes a $15 million authorization through February of 2023.
$13 1 million is available under the program at the end of the quarter in.
In addition, we purchased 800000 shares for $4 2 million to cover income tax withholdings associated with the with the vesting of employee shares.
Looking ahead based on our strong bookings performance, we expect second quarter revenue to be 35% to $36 million a growth rate.
<unk> of 22% to 25% year over year.
For the full year, we expect total revenue to be $144 million to $146 million.
A growth rate of 20% to 22% over the prior year from.
From a profitability perspective, we will continue to operate the business to adjusted EBITDA margins at or near 20% throughout the year as we balance our strong financial performance with increased sales and marketing investment to drive continued long term revenue growth.
We remain excited by the positive momentum we are seeing in bookings and believe our investment in sales and marketing will continue to drive strong sustainable double digit bookings and revenue growth.
And with that let me turn the call back to art.
Thank you Kevin.
I'd like to close by once again thanking all of our employees for their hard work this quarter your determination and dedication to executing our growth plan is paying off.
It is a pleasure to be part of such a great team with that we're happy to take your questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And the first question will come from Erik Morton Newsy with Lake Street. Please go ahead.
Yes, congratulations on the quarter and also congratulations on the upward revision to the guidance. That's why I wanted to start with $144 million to $146 million for the year that 20% to 22% growth pretty big step up versus the prior guide for the double digit expansion.
What is the key driver there.
I would imagine it's on the dice side, but is that the commercial accounts really taking off and getting old.
So I will tell you that.
I would say that the general reason for our confidence is our paas bookings the bookings obviously translating to revenue, but we have seen a very very positive momentum in that commercial accounts new business division. So that's a powerful lever that we're using for the remainder of this year, but Kevin do you have any additional thoughts that you wanted to provide.
I think it's a combination of.
Strong renewal rates and strong new business performance, it's a little bit of all of that coming together I think you saw that Eric and the metrics that we just disclosed.
I think the fact that we've got strong backlog that I alluded to the contracted backlog gives us comfort that.
That we will be at that $1 $44 million to $146 million for the year.
Okay, and then a little bit of a longer term question I know, we're barely barely into 2022 here, but youre targeting a 20% adjusted EBITDA margin for 2022, and I get that you want to invest the upside into sales and marketing, but how should we think about kind of a three year.
Plus outlook on where you expect the profits of the business to go.
Yes, Eric we think that the model we have today is consistent with other SaaS and software models that if we look out of.
A handful of years I'm not sure if it's exactly for exactly three and a half are women that we should be seeing margins at or near that 30% range.
We are not completely focused on that in the near term because we continue to have the ability to invest in sales and marketing to drive that top line growth.
But we do think the economics as I said should be consistent with other SaaS models that that are in that 30% range over the next three to four years.
Yeah.
Okay, and then you're investing in sales reps I know you finished out 2021 with around 90.
Across I think it was I can't remember if that was across both sides of the business or just the the dice side of the business, but youre going to and I want to say roughly 20% to that number where are we in the hiring at this stage of the year.
We're exactly where we want to be we actually hired a total of I believe six or seven new business reps in the first quarter and we would essentially maintain that pace for the remainder of this year and as I've described in the past for US it's important to bring these sales reps on and are measured.
Wei.
Because we have to support them, we support them with these marketing qualified leads so every time, we bring on a new.
Business representative we make sure that our marketing qualified lead budget actually expands and then we also have a very supportive training department that requires them to go through approximately five to six months of training. So we want to make sure that we do that in a measured way. So again youre going to see that same pace of hiring.
For the remainder of this year as always indicate you can go to our careers page at any time at <unk> group and see the positions that we have available.
Okay and then just.
Looking back on Q1, the mix between kind of the recurring revenues.
The nonrecurring revenue as anything unusual to point out or are we still talking about a 90 10 mix.
Yes, it's pretty much a 90 10 mix.
We're seeing that consistently across both businesses and and within each.
Within each of the segments as well within dice.
Got it congrats again on the quarter and the outlook. Thanks for taking my questions.
Really appreciate Eric Thank you.
And the next question is from Zach Cummins from B Riley. Please go ahead.
Yes, hi, Kevin Thanks for taking my questions and congrats on a strong results.
Art can you talk about just the success of the investments that you've seen thus far on both adding sales head count and on the marketing side of it but some of your digital marketing campaigns I mean talking about what investments were successful here in Q1 in which areas that youre planning to really put the pedal to the metal here in the upcoming quarters to take advantage of.
Strong demand environment.
Yes.
Those are great questions and first and foremost I'd say that the big investment that we had in marketing was for our brand awareness campaigns and those are campaigns that are geared towards.
Technologists that are.
Less than 10 years into their career and what we saw as a result of that was a 50% lift in traffic to the dice site. So when I think about our business model ultimately being a marketplace and having to have balanced as we bring on more clients, we have to have more technologists because.
Because thats what they want that's why they are there for.
That intended purpose to engage with technologists, we really had a lot of success with these marketing campaigns I would also say that we delivered clearance jobs churn zero implementation in this first quarter and that's a platform that gives us a lot of visibility into <unk>.
Individual client experience, we rolled that out in the dice platform in late 2020.
And we've been essentially.
Embraced it and make sure that everybody understood how to use it last year on dice, because we saw such a success in terms of our revenue renewal rates in all aspects of our kpis with customer engagement, we decided we're going to bring that same system to clearance jobs and I think that that's going to be.
A very powerful tool for the future for clearance jobs now when you ask where are we investing further I would say that as we bring onboard new sales reps. They are largely going to the clearer to the dice commercial accounts new business teams, because we really believe we have the largest white space opportunity of the law.
<unk> total addressable market.
There in fact, we've done a study that indicates that there are over 80000.
Clients that could use the dice platform internally and so that's.
The very large area that were essentially putting a bet on.
Understood. That's helpful and can you talk about the current demand environment I mean with the escalating conflicts in Ukraine have you seen any sort of incremental demand for clearance jobs.
And kind of recent months.
Yes, yes, I would say that what we know about clearance jobs. When we think about its performance historically is very highly correlated to the defense budget in the United States and we know that in more time environments defense budgets go up and in fact, you can also look at the fact that the.
Bye bye.
Biden administration did propose another very large increase for the fiscal 2023.
Defense budget, and so we believe that that will potentially benefit the platform because there is going to be more projects.
And therefore, a need for more cleared professionals and we're already seeing the evidence of that in the discussions that we're having with clients today.
Understood and final question for me I know the demand for Tech talent is.
Really had never probably been closer to these sort of levels that we've seen here in kind of recent months, but.
With the potential economic risks in a more challenging macro environment. I mean, how are you thinking about the overall demand for tech talent versus maybe the broader John job economy.
Well as I indicated in my <unk>.
Remarks.
We have seen is an acceleration of digital strategies and digital planning across all businesses and granted in a recessionary environment if that does in fact emerge.
<unk> would probably restrict their hiring strategies, but we feel like there is a countervailing trend towards a need for these technologists to complete these projects because there is so vital to the ultimate success of businesses everywhere.
Understood well, thanks for taking my questions and congrats again on the strong results.
Really appreciate it thank you.
And again, if you have a question. Please press Star then one the next question is from Kevin Liu with Kevin Lu and company. Please go ahead.
Hey, good afternoon guys.
Now you come to that on the strong results and outlook as well.
First question I had here was just very impressive to see.
Both dice and clearance jobs get that renewal rate.
Over 100% here can you talk a little bit about how much of that is just kind of seat expansion amongst your existing clients persistent pricing levers you have to pull.
So Kevin do you happen to know what the mix is between.
Adding licenses for example to individual clients versus what we call non core services versus pricing.
I don't have that offhand I mean, what we are seeing now is an increase in the amount.
It leans towards seats I.
I don't have the specific ratio between seats and pricing we do build in.
Roughly a anywhere from a 4% to 9% escalator on auto renewals, Kevin So that is part of it but we are starting to see though also an increase in demand for our products.
We are not specifically seeing existing.
Recurring revenue license customers buying as an example, more career events or more sourcing services. So it really does come down to expanding their existing core certainty existing core services that they are buying.
Got it that's helpful and really I think a lot of folks would have been happy to see you guys kind of sustain the 90% plus revenue renewal rate now it's kind of north of 100%, maybe just talk about whether you think this sort of rate is sustainable as you move forward from here or do you think it's more of just kind of a product of the tight labor market.
So I would say that.
Go ahead go ahead sorry.
No I was going to say that we think that we could be in the ninety's in terms of our revenue renewal rate for both dice and clearance jobs as to whether or not we can sustain over a 100%.
I think that one quarter doesn't necessarily make a trend just yet so were still stating that we feel like a successful SaaS based business in the nineties is one that can grow at double digit and 20% plus range very successfully.
Great and then maybe tens of your conversations with customers right. Now obviously you guys have made a lot of investments into both platforms, but wondering if there's anything else that they would want us to either acquire or build internally to kind of.
Help them acquiring onboard talent quickly.
Sure I'd say that the most powerful team that we're seeing is the need for corporate branding so essentially having the ability to tell the story about the company's mission its values its culture.
We're finding in this kind of an environment where in March the technology sector unemployment rate was one 3% is the technologists. These candidates not only can they get the salary of the compensation that they want but they can also work for the kind of company that they respect and.
But the cultural aspects of the company become a dominant part of the decision making process. So we want to give.
Our clients the tools to essentially engage with these candidates on the platform off the platform, but we also want the ability to allow them to tell their stories and why they have a mission that that particular candidate should be a harder.
Alright, great Thats helpful. I appreciate you taking the questions and good luck here.
Absolutely. Thank you very much Kevin.
And ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to art Daly for any closing remarks.
Thank you very much everyone for your interest in DHA group. Thanks for joining our call today and have a great day.
Thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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