Q2 2022 DHI Group Inc Earnings Call
Yeah.
Good afternoon, and welcome to D. H I Group, Inc. Second quarter 2022 financial results.
All participants will be in listen only mode should you need assistance. Please signal conference specialist a personal start key followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you got those southern will your telephone keypad to withdraw your question. Please press Star then two please.
Please note. This event is being recorded I would like to turn the conference over to Tom Kelly.
K R Investor Relations. Please go ahead.
Thank you operator, good afternoon, and welcome to D. H I group's fiscal 2022 second quarter earnings Conference call with me on today's call are D. H I C O R Bailey and Chief Financial Officer, Kevin Bostick.
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 2022 second quarter financial results. The 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.
I want to remind everyone that during today's call management will make forward looking statements that involve risks and uncertainties. Please note that except for 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.
As contained in any forward looking statements.
Factors that could cause these forward looking statements to differ from actual results include delays in development marketing or sales 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 Exchange Commission.
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 adjusted earnings per share, which are not prepared in accordance with U S. GAAP information about and reconciliation of these non-GAAP measures to the most directly comparable GAAP measures are available on our own.
The release and on our website at D. H I group Dot com in the Investor Relations section.
I'll now turn the call over to our daily C E O D check that.
Thank you Todd good afternoon, everyone and welcome to our fiscal 2022 second quarter earnings Conference call. Thank you for joining us today.
We are pleased to report another quarter of strong financial results with total bookings growth of 27% year over year and total revenue growth of 29% as more employers are using our subscription based offering.
While doing this we maintain an adjusted EBITDA margin of 21% for the quarter, making us once again, a rule of 40 plus company.
With a significant supply demand gap created by the increasing demand for technologists more employers need access to a growing community of tech campus and our sophisticated tools.
To find attract engage and higher the highest quality tech professionals.
During the second quarter U S employers posted over 1.6 million I T jobs up 60% year over year and 38% from the first quarter. According to information technology trade group Katia.
Even in this difficult macro environment. This growing demand for technologists showed no signs of slowing down as U S. Employers posted over 500000 open tech jobs in June alone up more than 62% year over year.
At the same time, the unemployment rate for technologists is near an all time low of one 8% and there are only about 90000, new comp computer science graduates entering the workforce each year.
With demand for technologists significantly outstripping supply employers, especially ones that are not specifically tech companies, but have digital initiatives need our subscription based offering to find and attract the right Tech candidates.
For those of you that are new to our story Dyson clearance jobs are our two subscription based offerings.
We're both 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.
Dice has over 5 million technologist members, while the clearance jobs has $1 4 million and we continue to grow the number of candidates each quarter.
Oh sites use our proprietary skills mapping technology that was recently granted a patent by the U S patent and trademark office.
Our skills mapping algorithms allow our subscribers to find and engage the best Tech candidates for their open positions and provides a substantial competitive advantage for both dice and C. J.
Unlike general his career sites, our marketplaces are solely focused on serving the technology sector, where candidates are measured by the technology skills. They have acquired over their career and not job titles.
With our leading career marketplaces for finding engaging technologists DHA is well positioned to grow as we capitalize on the increasing demand for highly qualified tech professionals.
Now, let me dig into both of our brand's performance during the quarter let's.
Let's start with dice, which addresses our largest market opportunity.
Our bookings for dice increased 27% year over year in the second quarter and our revenue renewal rate remained strong at 99%.
All of this resulted in our dice revenue for the quarter, increasing 30% year over year.
Dice has two opportunities for expansion is it directly serves the growing market demand for technologists dice commercial accounts is our largest white space opportunity with over 80000 companies in the United States meeting our ideal customer criteria.
These are companies across every industry vertical, including finance health care manufacturing and consulting.
Jetblue Airlines, Boston Children's Hospital, and Toyota are all new commercial accounts, we signed this quarter that illustrate the breadth of interest in technologists across all sectors of our economy.
With approximately 2500 commercial account clients today, we are just scratching the surface on this large target market.
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 client 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 second quarter.
We also continue to increase our marketing spend to generate more qualified leads to fuel our expanding new business teams.
The new business teams were successful in converting these leads into new clients during quarter and as a result, our desk customer base grew sequentially for the sixth consecutive quarter, adding 137 net clients.
In addition to successfully driving new bookings through our improved sales and marketing efforts.
We are expanding our technologist community through our dice brand advertising campaigns.
We've seen a 50% improvement in traffic and candidate registrations from our first campaign launched in September and at the end of the second quarter. We launched version two <unk> of these campaigns.
With these brand awareness campaigns, we're seeing improved reach and engagement metrics on dice, adding approximately 40000, new dice members each month to our community.
Adding tech professionals to our marketplaces attracts more and more clients, which in turn makes our platforms more valuable to tech professionals, completing a virtuous cycle.
Now, let's talk about clearance jobs.
Our bookings for C. J increased 27% year over year in the second quarter and our revenue renewal rate remained strong coming in at 99%.
All of this resulted in our C J revenue for the quarter, increasing 26% year over year.
D J celebrated its 20th anniversary on July seven and continued to reach record.
Candidate registrations record candidate profiles record posted jobs and.
And record messages sent on the platform during the quarter.
Similar to dice, we also have two growth opportunities for C. J.
The first is the government contractor market, where we currently have approximately 1900 contractor clients, but know that there are over 10000 cleared employers that can use our services.
D J, a second growth opportunity is selling at 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 government agencies, adding several new clients during the quarter, including Pacific Northwest National Laboratory talented technologies and Virginia Tech.
C J sales and marketing teams continue to further penetrate these two market opportunities during the quarter, adding 48 net new clients.
As we look ahead, we continue to execute on our growth plan by increasing our investment and our proven sales and marketing engine to capitalize on the increasing demand for tech professionals.
We have large addressable markets for both dice and clearance jobs and as I said before we are just scratching the surface of our outreach to the tens of thousands of prospective clients for each well.
We will continue to increase our sales team capacity. This year as we work further penetrate these significant target markets.
Despite current macroeconomic concerns the demand for technologists continues to reach record levels as such we remain confident in our ability to sustain double digit bookings and revenue growth rates and reconfirm to delivering rule of 40 plus performance for the remainder of this year and into the future.
On that note, let me turn the call over to Kevin who will take you through our financials and increased guidance for the year 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 second quarter financial results.
We reported total revenue of $37 $1 million, which was up 8% sequentially and 29% year over year total.
Total bookings for the quarter were $35 $3 million up 27% year over year.
Dice revenue was $26 $8 million up 9% sequentially and 30% year over year, nice bookings were $25 $6 million up 27% year over year we.
We ended the quarter with 6386 dice recruitment package customers, which is up 17% year over year.
Our average annual revenue per dice recruitment package customer was up both sequentially and year over year to $14304.
Approximately 90% of Dices recurring and comes from annual or multi year contracts are.
Our dice revenue renewal rate remained strong during the quarter at 99% down four percentage points from last quarter and up 10 percentage points from last year.
Our dice customer count renewal rate was 85% down one percentage point from last quarter and up four percentage points from last year.
Our dice retention rate was 109%.
These metrics continue to demonstrate the strength of the tech job market and the value of the dice products in the recruiting of technology professionals.
Clearance jobs revenue was $10 2 million up 6% sequentially and 26% year over year.
Bookings for C. J were $9 $7 million up 27% year over year. We ended the second quarter with 1976, CJ recruitment package customers, which is up 11% year over year.
Our average annual revenue per C. J recruitment package customer was up 2% over last quarter and up 12% year over year to $18708 similar to dice approximately 90% of C. J revenue is recurring and comes from annual contracts.
Our C. J revenue renewal rate was 99% for the second quarter down five percentage points from last quarter and up two percentage points over last year.
C J customer count renewal rate was 84% down three percentage points from last quarter and flat year over year.
Our C J retention rate was 113% these.
These strong renewal rates demonstrate the continued value C. J delivers in the recruitment of cleared professionals.
Turning to operating expenses second quarter operating expenses were $36 2 million compared to $28 2 million in the year ago quarter.
We are continuing to grow our sales team and are increasing our third party marketing spend to drive increases in the marketing qualified leads to support the additional salespeople.
Also we continued to invest in our broader brand awareness campaigns to drive technologist growth on our platform.
The company realized an income tax benefit for the quarter of $162000 on income before taxes of $1 3 million.
Our rate for the quarter differed from our normal expected rate of 25% due to tax benefits from the vesting of share based compensation awards R&D tax credits and the use of a capital loss carryforward to offset a gain on an investment.
We recorded income from continuing operations for the second quarter of $1 5 million or <unk> <unk> per diluted share compared to a loss from continuing operations of <unk> $2 million or approximately zero cents per diluted share a year ago.
Adjusted diluted earnings per share for the current quarter was one.
Compared to two for the prior year quarter.
Diluted shares outstanding for the current quarter were $47 million compared to $47 2 million in the prior year quarter.
Adjusted EBITDA for the second quarter was $7 8 million a margin of 21%.
<unk> to $7 1 million and a margin of 25% in the second quarter a year ago.
We generated $10 2 million of operating cash flow in the second quarter compared to $12 9 million in the prior year quarter.
From a liquidity perspective at the end of the quarter, we had $3 6 million in cash and total debt outstanding of $30 million under our revolver.
During the quarter, we amended our credit agreement, increasing the size of our revolver from $90 million to $100 million with an accordion feature for an additional $50 million.
Facility previously due to expire in 2023 now has a maturity date of June 2027.
The pricing structure of the new facility is materially unchanged from the previous credit facility, though it is now a sofa based pricing grid.
Deferred revenue at the end of the quarter was $54 1 million up 25% from the second quarter of last year.
Our total committed contract backlog at the end of the quarter was $104 1 million, which was up 39% from the end of the second quarter last year.
Short term backlog was $86 $2 million at the end of the second quarter, an increase of $21 $6 million or 34% year over year.
Long term backlog that is revenue to be recognized in 13 or more months was $17 9 million at the end of the quarter, an increase of $7 4 million or 78% from the prior year.
During the quarter under our share repurchase program, we purchased approximately 625000 shares for $3 7 million, an average price of $5 94 per share.
As a reminder, our current share buyback program includes a $15 million authorization through February of 2023.
$9 $4 million was available under the program at the end of the quarter.
Looking forward based on our strong bookings performance, we expect third quarter revenue to be in the range of $37 million to $38 million a growth rate of 20% to 23% year over year.
For the full year 2022, we are increasing our expected total revenue range to $145 to $147 million.
Our growth rate of between 21 and 23% over 2021.
From a profitability perspective, we will continue to operate the business to adjusted EBITDA margins at or near 20% throughout 2020 twos as we balance our strong financial performance with increased sales and marketing investment to drive continued long term revenue growth.
We are excited by the continued positive momentum we are we're seeing in bookings and believe our investment in sales and marketing will drive strong sustainable double digit bookings and revenue growth rates going forward.
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 per determination and dedication to executing our growth plan is certainly paying off.
It is a pleasure to be part of such a great team and with that we're happy to take your questions.
We will now begin the question and answer session.
To ask a question you must have started when your telephone keypad.
If you're using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question will come from Zach Cummins with B Riley Securities you May now.
Go ahead.
Hi, Good afternoon art and Kevin Thanks for taking my questions and congrats on the strong quarter.
Thanks, really appreciate that attack yeah, yeah, absolutely and I know through the month of June you really haven't seen any slowdown in demand across the technology sector, but just given all the headlines that we've seen across all of these tech companies regarding lay offs or slowdowns in hiring have you started to see any of that filter.
Through to some of your customers or what's kind of the overall feedback you've received here now just a month into Q3.
So the good news is that we.
We do not have Robin Hood as a customer.
Say that jokingly actually we have not seen any change in bookings performance one month end, meaning for the month of July and very importantly, I think.
It's notable that we as a company have less than 1% of our revenue tied to what I consider to be venture backed or early stage businesses.
And even if you look at those businesses that have announced layoffs I think the number is cumulatively in the tech sector about 30000.
Have been laid off year to date and as I announced inside of my disk.
A description of the current state of the business there were over 500000 openings in June alone. So these layoffs are certainly being magnified by the media.
They are not really resulting in a change in people's attitude towards hiring tech labor and we still see a huge supply demand deficit that is playing out in the market today.
Yeah.
Understood. That's helpful and can you talk about more of your investments in both brand awareness campaigns and also on the lead generation side. It seems like it's been going pretty well, thus far so just any more insight into your plans for potential spending here in Q3 or in the back half of the year.
Yes, great questions and we will continue to actually increased our spend associated with marketing qualified lead production as well as these brand awareness campaigns as I mentioned the second version of these brand awareness campaigns, just literally rolled out at the end of June . So we're assessing their performance generally speaking we put.
These particular advertisements, whether they're static images or their videos on a multitude of channels and we gauge receptivity the actual.
Click through rate and so we're studying that now to kind of make sure that we have a plan of attack for the second half of the year, but we fully intend to increase our marketing spend in the second half of 2022.
Understood and final question for me is there's more so around capital allocation I know you've been prioritizing share buybacks here in the first half of the year. So can you just give us a sense of how you're thinking about spending your excess cash flow here in the back half.
Yeah, I don't think Zach this is Kevin I don't think our philosophy has changed we will continue to evaluate.
Investment in Capex.
And investment in or buying back our shares really as the two opportunities for uses of cash.
As you know we did make an investment in the news in Q3 of last year. So we will continue to look at opportunities that could accelerate parts of our business, but I would say our capital allocation philosophy has not changed over the last couple of quarters, and we don't anticipate that changing.
For the balance of this year.
Understood well, thanks for taking my questions and good luck with the upcoming quarter.
Really appreciate that thank you. Thank you.
Our next question will come from Matt.
Mikael.
Lake Street, you May now go ahead.
Hey, guys great quarter.
My only minus one of my questions here is just on the guide. So if we just if I just make it easy here. We go into Q3 guided for $37 million and 38 million. So we take the midpoint on that at 37, five and then take the midpoint on your full year guide at $146 million.
It's kind of modeling out for Q3 Q4 revenue to be essentially flat can you kind of go into what's may be slowing down or and if there's any room for upside on that guide.
Well I would say we look at the opportunity ahead of us and we try to have a balanced view of what are some of the upsides and one or some of the pressures.
While 90% of our revenue is recurring and comes from annual subscription contracts.
There is some revenue that is shorter term in nature that we're continuing to keep an eye on.
But with that I think that we still remain very encouraged by Q3 and Q4, we've done very well with bookings that.
On an amortized basis will flow into Q3, and Q4, but I think ultimately our perspective as you know, let's have a balanced view as we enter into Q3 and Q4 with some.
Some of the headwinds that have been discussed.
Okay. Thank you guys and then just my second question here is on renewal rates I know you mentioned that a drop down around 4% from one or last year or 103 last quarter to 99. This quarter are you expecting.
This too.
Stable throughout the year are you expecting to jump back up maybe into the or exceed.
Exceed 100%.
So ultimately as we discuss this even last quarter, we thought that being over 100% was kind of an aberration and that best in class SaaS based business model maintain revenue renewal rates in the Ninety's and so that's what we intend to do from this point forward, but I'd also ask.
At any kind of insight you might have.
No I think it's hard to look at any individual quarter, because there may be some.
Unique anomalies I think when we look at the trend overall.
To <unk> point, we think on a customer count basis mid eighties revenue renewal rate.
In total will be mid Ninety's, which then would show retention on those customers, who are renewing up greater than a 100%. So it'll move up and down couple of percentage points any quarter, but I don't think theres any difference in trend that we've seen relative to the last couple of quarters.
Okay. Thank you and then just my last one just going back to <unk>.
Building out your sales force here.
You mentioned that you did increase I believe the head count in our sales department can I get a number for that and like what you guys expect.
To hire out throughout the rest of the year.
So in general we're on a track to hire approximately five net new individuals each quarter, we overshot that goal in the first quarter of this year were approximately there in the second quarter, we intend to maintain that same hiring trend.
<unk> trend for the remainder of this year, meaning five in the third quarter five in fourth quarter, we believe that by doing so we're increasing our quota capacity by approximately 20% and that's a healthy place to be when you think about the nature of our business model and growing the business at 20%.
Plus rates.
Okay. Thank you guys that's it for me.
I think <unk> really appreciate it.
Our next question will come from Anja Soderstrom with Sidoti you May now go ahead.
Thank you for taking my question and congratulations on another great quarter.
Hey, I have us they don't want to start on that renewal rate.
What's driving the lump in asking that.
What's driving the renewal rate itself.
No so the lumpiness.
100% last quarter, and this quarter and 99%.
What's driving that.
I would say that as I indicated in the last question that was asked by Max.
That in Q1, we felt like having our revenue renewal rate above 100% was aberrational what drove it was one time transactional non subscription based activity that were sold into packages in the first quarter and so we don't want to.
Forecast that that's going to happen forever I think that there was a pent up demand.
Going into 2022, four technology hiring general and so people took on additional services and additional add ons to their natural subscription contracts because they wanted to figure out new ways to get to the end result, which is.
Those technology professionals coming on board.
Okay. Thank you that was helpful and then given how strong your business is.
And then Matt just on demand and what kind of pricing power do you have an opportunity to see price increases.
That's a great question I can tell you that we have studied pricing over the last year, we had the advantage of using an outside consultant for quite a period of time, we are in the midst of re formulating our rate card, we plan to essentially roll that out very cautiously in the second half of this year, making sure that.
The pricing meets the needs of our intended.
Our client relationships and so again, we think we do have pricing power to a certain degree because of the nature of the supply demand imbalance inside of the tech market and the fact that we are a good tool for essentially delivering on the proposition of hiring tech professionals.
Okay. Thank you.
And would you rule of 40, and you will instead of ramp up your marketing spend with the higher revenue. So let's kind of conversion rate do you have that and what kind of visibility you have in hand.
That being said.
And how we can sort of expect that to impact the revenue growth in the coming years.
So we actually look at it as a matter of.
Supporting the new business team there is a calculation that we do every single quarter for that matter redo. It every single month, and which we determine how many.
<unk>.
Closed one deals should come from marketing qualified leads and so we ramp up that number each quarter. According to the expansion of the new business team itself as I indicated in my answer to Max we are increasing that team by five new sales reps.
Each quarter. So if you think about it we're trying to add marketing qualified leads to support those new five members, but we're also supporting the existing team. So it's an ever growing budget.
And we're seeing good conversion, we're not seeing any kind of change outs a substantially in the.
The quality of the leads the conversion of leads to close deals.
And I'll jump in with one additional comment on top of ours, which is we.
We spent a fair bit of time looking at the lifetime value of a customer over the customer acquisition cost, which is a common ratio used in in the software and technology space.
And our target is to be above three point out three to one.
We are seeing that.
It moves a little bit every month every quarter based on content the lag between spending that dollar and win that lead comes to fruition and becomes a contract, but we do ensure that our marketing spend has the appropriate ROI attached to it and in our industry that that LTV to CAC ratio.
<unk> is a common way of looking at it.
Okay. Thank you and that was all for me.
Thank you rania.
Our next question will come from Kevin Hulu with <unk> <unk> Company LLC you May now go ahead.
Hey, good afternoon guys.
Wanted to temper.
Kind of the bookings outlook here.
Certainly you have a big opportunity and white space on the commercial side of things.
Net new customer adds.
Over 100 this quarter it was up over the prior quarter. Just wondering as you look at your pipeline today should we expect it to be more driven by kind of the volume of customers added.
Or is there some.
Or are you seeing kind of a customer to add nothing development metric, but we're still kind of the size of the customers are landing with.
So we've actually increased the size the annual contract value associated with dice and clearance jobs.
Every quarter over the last four quarters.
The good news part of the story, however, I'd say that in the case of dice.
Very specifically.
We will see growth in bookings by creating new relationships. So you should see that customer count growth.
Continuously over the course of time.
Yeah.
Got it and then maybe just on the marketing spend can you talk about kind of the efficiencies, we're seeing on that spend meaning on a per unit basis, whether it's net new QL or even new candidates share platform are you seeing that metric hold steady or are you actually seeing even more efficiency and getting better returns on that dollar.
It's actually holding steady I would say that our team has done an enormous wonderful job of driving down the cost per marketing qualified lead over the last two years, but I think that we've hit kind of like the efficiency point, where it's just underneath $100 per marketing qualified lead and so.
We see that number bounce in the Ninety's, but theres no real substantial improvement that I can foresee in the future.
Understood and then just lastly for me in terms of kind of the 40000 plus profiles youre, adding each month can you talk a little bit about how that's manifesting in kind of better value for your customers and whether that creates that opportunity to increase pricing. Specifically are you seeing kind of fill rates for some of the open positions.
Yes.
Yes move higher.
Yes. There is just no question that adding additional members to our community makes the community more valuable to the clients and the clients have a lot of different ways that they look at return on investment for the platform, but I'd say one of the most basic ones is the number of applies per position and that grows as you grow the community.
It is correlated so youre absolutely right neurologic.
Got it and then actually just one last one on the expense side and the G&A expense line kind of jumped up a bit sequentially and year over year can you talk about if there was anything onetime or unusual in there or if that's kind of the appropriate run rate as we move forward.
I would say.
In G&A, we kind of bounce around a little bit because we don't amortize expenses, but I would say that that's a good run rate at least for the rest of the year as we think about.
Our expenses there may be a few one time items items in there but there.
There may be some one times going forward as well, but I don't think it's it would be materially different than what youre seeing.
Alright, Thank you for taking my questions and congrats on the Soundcloud.
Really appreciate it Kevin.
This concludes our question and answer session.
I would like to turn the conference back over to Art Vale for any closing remarks.
Thank you and before I want before we actually wrap up I want you to all know that <unk> management will be hosting its second annual virtual analyst and Investor day on September eight so we will be putting out a press release tomorrow with more details around when that's going to take place within the day.
We hope that you could all join us as we provide a lot more detail on our growth plans for DHA and thanks, everyone for your interest and DHA group and have yourself a wonderful day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.