DHI Group Inc (DHX) 2018 Q4 法說會逐字稿

Good morning.

My name is Lisa, and I'll be your conference operator today.

At this time, I would like to welcome everyone to the Fourth Quarter and Full Year 2018 DHI Group, Inc.

Earnings Conference Call.

(Operator Instructions) Thank you.

Rachel Ceccarelli, you may begin your conference.

All right.

Thank you, Lisa, and good morning to everyone and welcome to our 2018 fourth quarter earnings conference call.

With me today are Art Zeile, President and Chief Executive Officer; and Luc Gregoire, our Chief Financial Officer.

Today's call includes certain forward-looking statements, particularly statements regarding future financial and operating results of the company.

These are based on management's current expectations or beliefs and are subject to uncertainty and changes in circumstances.

Actual results may differ, possibly materially, from those expressed or implied in these forward-looking statements due to changes in economics, business, competitive, technological and/or regulatory factors.

For a discussion of these principal risks and factors that could affect the company's future results, please see the description of risk factors in our Annual Report on Form 10-K for the year ended December 2018, which will be filed shortly, in the section entitled Risk Factors, Forward-Looking Statements and Management's Discussion and Analysis of Financial Conditions and Results of Operations.

The company is under no obligation to update any forward-looking statements, except where required by the federal securities laws.

During today's call, we will be referring to certain financial measures including adjusted revenues, adjusted EBITDA and adjusted EBITDA margin that are not prepared in accordance with U.S. GAAP.

Information about and reconciliations of these non-GAAP measures to which most directly compare to GAAP measures are available on our earnings release, which is posted on our website at www.dhigroupinc.com in the Investor Relations section.

With that, I will now turn the call over to Art.

Thanks, Rachel, and good morning to everyone who has joined our call.

We appreciate your interest in DHI.

We ended 2018 with strong momentum, reaching an important inflection point in our business.

We stabilized our remaining tech-focused revenues, which in the fourth quarter were flat year over year for the first time in nearly 3 years.

At that same time, we improved our profitability.

Additionally, for the first time in several years, our Dice client count remained constant on a sequential quarter basis and our average revenue per customer increased.

This is a watershed moment for our company.

We made significant progress in executing on our tech-first strategy and strengthening several important dimensions of our business.

We completed the divestitures of our non-core brands, closed Dice Europe and restructured several offices, streamlining our global footprint.

We implemented robust frameworks for delivering excellence in sales, marketing, product management and engineering.

We also put in place a strong execution-oriented management team and began implementing a culture of customer-focused innovation.

On the product side, we established a regular delivery rhythm and product roadmap in 2018, supported by a clearer sense of mission.

ClearanceJobs is our test bed for product innovation, and we are successfully leveraging that across our other brands.

We launched TalentSearch with Intellisearch in Dice in the third quarter as evidence of our commitment to taking the best time tested features from ClearanceJobs and bringing them to Dice and eFinancialCareers.

This was the first major Dice upgrade in years with nearly 80% of Dice clients migrated to date.

The feedback has been extremely positive, and we're seeing a double digit increase in usage.

Equally important, we launched ClearanceJobs Next Generation platform in the fourth quarter.

Next Gen is a substantial leap forward in delivering a true career network where employers engage with candidates on opportunities by leveraging robust personal profiles, live chat, instant messaging and voice over IP communications.

Again, the key features that differentiate ClearanceJobs' user experience are now part of the product roadmaps for Dice and eFinancialCareers.

eFinancialCareers made great strides last quarter in its Matchback program.

This program works with bank HR leaders to directly tie the hires they make to applications we process on our platform.

In one case, we demonstrated to a Global 500 bank that we had sourced 1,352 hires for them in 18 months, saving them the equivalent of $30 million in search fees.

The fundamentals of our business have also improved substantially over the last year.

We restructured our sales team to accelerate our opportunities for growth.

We made solid progress on rationalizing our expense base and stabilizing our adjusted EBITDA margins while also creating the resources we need to reinvest in our business.

We strengthened our balance sheet by reducing our year-end debt outstanding and refinancing our revolver.

I'm very pleased with how well we are positioned to achieve our 2019 strategic growth plan.

We began this year with a strong sense of purpose.

Our vision remains the same, which is to create indispensable career marketplaces for technology professionals to connect with the right opportunities and for clients to have access to the highest quality talent.

Our goal is to create a modern, personalized technology career network that efficiently matches candidates with their best professional opportunities.

These objectives are being reinforced by a leadership team and board that shared a disciplined and results-oriented mindset and have a strong collective sense of urgency about what we must accomplish this year.

In 2019, our priorities are centered on 4 key elements of our business: product, sales, marketing and financial performance.

On the product side, improving user experience is a critical area of focus.

Our goal is to bring Dice and eFinancialCareers to parity with ClearanceJobs on user experience by the end of this year.

In the first half, we plan to introduce 3 product upgrades to support this objective.

The first upgrade is the introduction of performance-based products which we will offer alongside our current subscription based offering.

This enhancement will enable some clients to pay us using a consumption-based model consistent with market best practices.

We believe this will improve our responsiveness to areas of unmet need, create new client relationships, and in turn, increase revenues.

ClearanceJobs has relied on this performance-based model very successfully for several years, resulting in nearly 50,000 jobs currently posted, which in turn drives more professionals to the site.

The second upgrade is implementing candidate match, which will use our AI-based technology skills data model to grade each candidate's skills, experience and relevance against the requirements of a job posting.

Allocations will be automatically scored using these sophisticated algorithms, allowing recruiters to quickly rank order their candidates.

The third upgrade is introducing protected profiles, which will allow candidates to control whom they connect with, which makes our sites more attractive for candidates to access.

We have observed that better candidate experiences lead to higher client success rates.

We also plan to complete a review of Dice's candidate database this year with particular focus on quality and relevance of its candidate profiles.

Access to high quality, actionable candidates is essential to Dice's value proposition, ensures employers are making efficient use of their time as they evaluate candidates.

ClearanceJobs Next Generation platform will continue to evolve in 2019 with the addition of a consolidated employer newsfeed for candidates and powerful recruiter workflow automation tools.

ClearanceJobs continue to outperform all of its financial and operational goals as well as hitting a new record for job postings and candidate connections in the fourth quarter.

A key driver of ClearanceJobs' success is its unique user experience with high levels of interaction, which doesn't exist anywhere else in the market for connecting specialized, hard-to-find talent to employers.

These features distinguish ClearanceJobs as a community of engaged professionals; not just another [job blip].

In sales, we launched the Dice commercial accounts team in the fourth quarter, further expanding our focus on direct hire employers.

As I had mentioned on our previous calls, we believe that this is a significant white space opportunity for us.

We have added new quota-bearing sales reps and recently hired an experienced leader to head the team.

We are currently ramping up this effort, and we expect to see improved results later this year.

Across our sales organization, we are also revamping client retention, pricing policies, contract terms, sales incentives and other elements that are essential to improving our sales performance.

In marketing, we are focused on increasing channel efficiency and scale to ensure that we are maximizing candidate acquisition and lead generation.

In the fourth quarter, we adopted Google for Jobs API to place job postings directly in the Google search algorithm.

We have already seen increases in candidate registrations and applications coming from these search engine optimization efforts.

In terms of fundamentals, Luc will provide more specifics in his remarks, but now that we have reached an inflection point in our revenues, our focus in 2019 will be on pivoting to revenue growth and expanding our margins.

To summarize, we are very pleased with how we ended 2018 and the level of momentum we have carrying into 2019.

We are excited about the path ahead of us.

We have further conviction that our strategy of delivering state of the art, specialized offerings for technology professionals, employers alike, will further differentiate us as we address a substantial unmet need in the market.

We are executing well and are fully focused on delivering against our strategic priorities.

We believe that the steps we are taking to build a world class, highly differentiated business will translate into sustained revenue and earnings growth and lead to superior shareholder value creation over time.

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

Luc?

Thanks, Art, and hi, everybody.

We ended 2018 on a strong note, and we're very pleased with the progress we've made in delivering against our financial priorities, particularly the inflection in our revenues.

As Art highlighted, we successfully stabilized our revenues and margins last year.

Our ongoing tech-focused revenues reached a milestone in the fourth quarter and were flat versus the prior-year period while our adjusted EBITDA margin improved to 22% from 21% in the third quarter.

We believe that this is a turning point.

In 2019, we anticipate that our tech-focused businesses will achieve modest year-over-year growth in revenues beginning in the first half, which should improve as the year progresses, and we anticipate that Dice will turn to positive year-over-year revenue growth in the second half.

We'll also make further progress on rationalizing our expenses, while at the same time investing prudently for growth, which should enable us to maintain our current level of adjusted EBITDA margin in the first half and gradually begin to increase it in the second half.

Our fourth quarter revenues were in line with our expectations and our margins came in ahead, helped by the steps we've taken to reduce costs and improve spending efficiency.

Our customer-related metrics also continued to improve.

These results are further evidence that the actions we're taking are having the right impact.

With the divestitures and Dice Europe closure are behind us as of the end of the third quarter, my remarks today will refer to revenues excluding these items for all periods.

So for the quarter, we reported revenues of $38.0 million, unchanged year over year.

The improvement in our revenue trend was driven by the further narrowing of the decrease in Dice revenues, another quarter of record revenues in ClearanceJobs, and a modest increase, excluding foreign exchange, in eFinancialCareers.

Now looking at revenues by brand, Dice revenues were $24.0 million in the quarter, 4% lower year over year, continuing the trend of narrowing the rate of decrease.

The trend in Dice recruitment package customers also stabilized following a long period of decline.

They again remained unchanged, staying at 6,200 customers as of the end of the fourth quarter, even though we typically see in a seasonal decline for this period in the past.

Our other Dice customer metrics also improved in the fourth quarter with the renewal rate on customer account at 67%, our renewal -- our revenue renewal rate at 78% and average monthly revenue per recruitment package customer at $1,129.

We feel these metrics are key as 90% of our revenues come from recruitment package customers with an average contract length of more than 12 months.

ClearanceJobs fourth quarter revenues were $5.7 million, a 22% increase year over year and the 12th consecutive quarter with at least 20% growth.

This persistent revenue growth is reflective of ClearanceJobs' strong competitive differentiation.

eFinancialCareers revenue for the quarter were $8.3 million, up 2% versus the prior year, excluding foreign exchange, driven by solid revenue growth in the Asia Pacific region.

We continued to see strong demand by the tier 1 banks in that region and growing penetration of the tier 2 banks, which represent a substantial pool of potential clients for us.

Now turning to expenses.

Fourth quarter operating expenses were $35.6 million for a $13.3 million or 27% year-over-year reduction of which $10.6 million was attributable to the effect of our divestitures and $1.7 million to the closure of Dice Europe.

The remainder of the decrease was primarily driven by lower marketing expenses and stock-based compensation.

Our marketing costs normalized to the first half 2017 levels before we increased spending on general awareness marketing.

We have determined that we can generate better returns on our marketing activities by more directly focusing our resources on candidate acquisition and customer lead generation.

Partially offsetting these reductions was an increase in G&A expense due in part to consulting fees that we incurred related to our expense reduction strategy.

We implemented several initiatives in recent months to identify cost savings at each of our expense lines with particular attention on the efficiency of our marketing, travel and vendor spending.

We've identified annual run rate reductions of approximately $7 million with half of that already realized in 2018.

The remainder will be progressively achieved throughout 2019 as we move to the new vendor contracts we put in place and as additional contracts come up for renewal.

These savings, together with the wrap up of our consulting projects and wind down of the associated expenses, will enable us to maintain our margins at the current level and then gradually expanding in the second half, while at the same time investing for revenue growth with product development and engineering in key areas of investment for this year.

Fourth quarter income tax was actually a net benefit of $1.3 million, driven mainly by the reversal of $1.6 million in FIN 48 unrecognized tax benefits upon the conclusion of audits and the expiration of certain statutes of limitation.

In 2019, we expect our effective tax rate to be approximately 25%, subject to the effects of discrete items such as vesting of stock-based awards.

Net income for the quarter was $2.9 million, or $0.06 per diluted share.

This result includes the adverse effect of $2.4 million in disposition related and other costs, which was offset by the beneficial income tax items in the quarter, including the FIN 48 reversal I just reviewed.

Adjusted EBITDA for the quarter was $8.3 million for a margin of 22% compared to $7.6 million and 19%, respectively, for the 2017 fourth quarter.

The 2017 fourth quarter included the effect of Dice Europe, which had a negative impact on the margin.

We generated operating cash flow of about $6.2 million in the fourth quarter, a decrease of $1 million year over year.

This result was driven by a combination of lower income from our tech-focused as well as divested businesses, along with changes we made to our billing terms, partially offset by tighter vendor payment management.

Now let me briefly address our balance sheet.

In the fourth quarter, we refinanced our revolver for an additional 5 years and reduced the size from $150 million to $90 million.

The pricing and covenant light structure of the new facility are materially the same as the prior one.

As we transition to a more streamlined company with improving fundamentals, we believe that a smaller revolver size, complemented by a strong balance sheet, will provide ample liquidity for our business needs and reduce our borrowing costs over the next 5 years.

At the end of the quarter, our net debt was approximately $11 million and our leverage ratio was well below 1x adjusted EBITDA.

Our strong liquidity and balance sheet remain essential to supporting our strategy execution.

We repurchased approximately 684,000 shares during the fourth quarter for accumulative total of about 1.1 million shares since starting our buyback program last May.

Going forward, we have about $5 million remaining of our authorization.

We'll continue to opportunistically repurchase shares, but we'll also carefully evaluate our first use of cash with our ongoing priorities being invested in our business.

In the first quarter of this year, we expect weighted average diluted shares outstanding to be about 50 million.

In closing, I'd like to emphasize that we look to 2019 to be a year of growth and additional transformation for our company.

We remain intensely focused on delivering against our strategic and financial objectives, and we have a clear path ahead of us for improving our top and bottom line fundamentals while also investing in our business.

We're very excited by the marketing opportunity in front of us and remain confident in our ability to deliver a differentiated user experience across our brands to employers and candidates alike.

We're equally confident in our ability to grow revenues and deliver on the meaningful operating leverage embedded in our business.

As always, I'd like to thank you for your interest today, and with that, let me turn the call back to Art.

Thanks, Luc.

I'd like to close by once again thanking all our employees around the globe for their hard work and dedication over the last quarter and throughout 2018.

Without your focus and commitment, we would not have been able to accomplish what we did last year and begin 2019 with such incredible momentum.

It is a pleasure to be part of such a great team.

With that, we're happy to take your questions.

(Operator Instructions) Our first question comes from the line of Kara Anderson from B. Riley FBR.

Hey, so I wanted to ask on the new performance-based product offerings that you're going to I guess offer alongside subscription for Dice.

Just wondering if you see that at all pulling away customers who currently are on subscription and I guess potentially cannibalizing some of the revenue there.

Well, that's a great question and one that we have actually been working through for quite some time, a number of different months where we've actually studied our entire customer base.

And we think that this is a really great solution of a certain subsegment of customers, so we're going to be rolling that out for those customers that can benefit from it most.

But we have done a lot of studies to just prove that the actual trade of subscription to the pay per view model will actually increase the revenue as we believe it rolls out over the course of time associated with those customers.

And that's because in conjunction with Intellisearch, we believe that there is a larger usage pattern of the actual database itself, and that's what we're selling access to.

So think of it as the fact that the Intellisearch capability gives our recruiters a more sophisticated tool to get to the right number of candidates they're looking for, and by studying their usage patterns, we believe that we know how many views they will use for every single search, and we're going to go to those customers that we think are going to benefit from that model, but also have high usage patterns.

Got it.

And just for clarification, so it sounds like this may not be offered to everybody, but you've selected those who it makes more sense for, or am I hearing that incorrectly?

That's correct.

In fact, we are rolling that out on beta basis literally this month in February, and we're going to go GA with it by the end of the quarter.

But we are basically being very targeted about who we are offering this set of consumption-based pricing services to.

That is correct.

Got it.

Okay.

And then I'm just hoping you can expand a little bit on the reception of TalentSearch.

I see that you pointed to the double digit increase in usage, but are you seeing this as a meaningful driver?

Or how do you I guess expect that usage to translate into revenue growth?

And then also, when will the remaining 20% roll out?

Well, that's a great question.

In fact, we have had the advantage of seeing usage trends ramp up from August where we had our first migration, and we're right now at the end of migration number 4 of our customer base.

Approximately 79% of our customers have migrated to TalentSearch 4.0.

So we've had the ability to track their usage patterns pre and post-migration for that period of time.

It is double digit.

It's, depending upon which wave we're talking about, anywhere between 10% to above 20% in terms of usage patterns.

And we believe that by moving to the pay per view model, we actually benefit the company for those customers that are at high usage levels.

In other words, right now on a subscription basis, these customers are paying for an infinite number of views, basically.

But once we go for pay per view as a model for the future for those customers that are seeing really strong benefit from Intellisearch, we believe that that's going to drive revenue.

And we've done a little bit of modeling, but I think it's fair to say that as we roll out, we're going to have a lot more evidence of the actual usage and revenue behavior over the next several quarters.

All right.

And then on the restructuring of the sales team, I think if I recall, there was some shifting around in accounts to various sales reps.

Just wondering if you've seen any disruption as a result of that.

No, actually we've seen the opposite.

We have been able to essentially expand the sales team itself.

So think of it as going through a period in the middle of last year where we stood up an enterprise field sales team that essentially covered 15 regions in the United States.

By expanding that team and then creating a commercial accounts team at the end of last year, we actually have taken a certain number of accounts, 6,200 accounts, and spread them over more people.

So we believe that those accounts are now able to develop a higher level of interactivity and relationship with the reps that are involved.

So we believe it's been a net positive because there's been the ability to essentially have a more concentrated focus on a smaller number of accounts per rep.

Got it.

And then just wondering if you can speak on sort of a high level to the overall propensity or maybe apprehensive for -- apprehension for people to act or close on leads at this time in a little bit of an uncertain environment.

Particularly impacts from Brexit that you might be seeing on eFC and then if there's any risk to ClearanceJobs' revenue trajectory with the government shutdown.

Both of those are excellent questions.

I'll tell you that we have been monitoring the effects of Brexit very closely, as you would suspect, within the eFC team, and we believe that there's been a modest effect.

What has happened in the past is that when any type of major government regulatory or structural change takes place, a lot of activity slows down, but then it has to speed up once there's clarity.

And clearly, I guess nobody really knows if there's going to be any near term clarity to the Brexit situation.

But the good news is that roughly half of our revenue and a growing amount of that revenue is coming from Asia Pacific.

And we're seeing double digit growth in bookings in the same period of time that we're seeing some of the negative effects of Brexit.

So think of our platform as being one that's global in nature, attending to the major financial hubs of the world, and there's no issues, and in fact a strong growth rate associated with Asia Pacific, Hong Kong, Singapore specifically.

We also work through Paris, Frankfurt and London through the European side of the eFC business.

You would say that the London side being one of those just smaller fractions of our business is probably slowing or we're not seeing the same amount of growth as the rest of the platform, but it's balanced by higher rates of growth across the rest of eFC.

With regard to ClearanceJobs, it's very interesting.

Obviously, there is a concern about the government shutdown.

We didn't see any negative effect during the period of time it was shut down at the end of December moving into January.

We still had strong bookings across ClearanceJobs.

When you think about what is at stake here and the fact that there may be a change in some of the, I would say, government military accounts to potentially fund a wall, that really is a small effect on the overall military infrastructure.

So there's still going to be a lot of people hiring folks for clearance -- that have clearances across the platform, irrespective of whether or not $5 billion goes to a wall versus the $800 billion military defense budget.

Again, we're monitoring the situation very closely and we don't take anything for -- we don't dispute that these are issues that we need to monitor closely, but we have not seen any negative effects across both those 2 platforms.

We have no further questions in queue.

I'll turn the call back to Rachel Ceccarelli for closing remarks.

All right.

Thank you all for joining us today.

To schedule a meeting with management, please email ir@dhigroupinc.com or call (212) 448-4181.

Thank you and have a good day.

This concludes today's conference call.

You may now disconnect.