DHI Group, Inc. (NYSE:DHX) Q4 2023 Earnings Call Transcript
DHI Group, Inc. (NYSE:DHX) Q4 2023 Earnings Call Transcript February 7, 2024
DHI Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon and welcome to DHI Group Fourth Quarter and Full Year 2023 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Todd Kehrli of MKR Investor Relations. Please go ahead.
Todd Kehrli: Thank you, operator. Good afternoon and welcome to DHI Group's 2023 fourth quarter and full year earnings conference call. With me on today's call are DHI's CEO, Art Zeile; and Raime Leeby, DHI's CFO. Before I turn the call over to Art and Raime, I would like to cover a few quick items. This afternoon, DHI issued a press release announcing its 2023 fourth quarter and full year financial results. The release is available on the Company's website at dhigroupinc.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 the Federal Securities laws. These forward-looking statements reflect DHI 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. Factors that could cause these forward-looking statements could differ from actual results include risks and uncertainties discussed in the Company's periodic reports on Form 10-K and 10-Q, and other filings with the Securities and Exchange Commission. DHI 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 diluted earnings per share which 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, a copy of which you can find on our website at dhigroupinc.com in the Investor Relations section. With that, I'll now turn the call over to Art Zeile, CEO of DHI Group. Art?
Art Zeile: Thank you, Todd. Good afternoon everyone, and welcome to our 2023 fourth quarter and full year earnings conference call. We appreciate your time today as we discuss our financial performance for 2023 and our future outlook. First, let's discuss the state of the tech labor market. There is no doubt that 2023 was a challenging year for tech hiring. Over 260,000 tech workers were laid off in 2023, compared to 165,000 in 2022, and based on monthly BLS data, the U.S. tech population only increased by 78,000 workers in 2023 versus 486,000 in 2022. This coincided with a decline in actual tech job postings throughout the year, where monthly job postings averaged approximately 220,000 in 2023, compared to 390,000 in 2022, a drop of over 40%.
We attribute much of the decline in tech hiring in 2023 to a recalibration from the massive hiring that occurred in 2021 and 2022 coming out of the pandemic, along with caution exercised by companies in a very uncertain environment. Looking ahead, customer sentiment remains very cautious, with most economists forecasting a slowdown in GDP growth in 2024 to a rate between 1% and 2%. Having said that, we believe the backlog of desired tech investments continues to grow inside enterprises. And we expect these important technology initiatives will be high priorities once the macro uncertainties begin to clear, which in turn will drive demand for our hiring platforms. Despite all of this uncertainty and its knock-on consequences, we continue to operate effectively and efficiently as evidenced by our ability to grow our revenue in 2023, as well as expand our profitability.
While we wait for commercial tech hiring to return, we have started to see our ClearanceJobs booking strengthen after the signing of the National Defense Authorization Act in mid-December, which provides for a 3% increase in defense spending compared to fiscal year 2022. This is a big positive for CJ, although the possibility of a government shutdown still creates a tougher sales environment for us. Given that Dice represents approximately two-thirds of our aggregate revenue, the question remains when we will see tech hiring start to increase back to a normalized level. We believe that this is a matter of when, not if, it will do so. As I've mentioned before, McKinsey Global Institute believes tech jobs will grow at a rate of 23% from 2022 to 2030 because of the continued digitization of our economy and the implementation of AI.
This theme is consistent with KPMG's annual CEO survey released just a couple of weeks ago, which stated that 72% of U.S. CEOs say that generative AI is a top investment priority. All of this data supports the long-term secular trend of tech hiring and gives us confidence that once businesses have a collective sense of confidence in our economy, they will accelerate their investment in technology initiatives and will need our platforms and our 8 million candidate profiles to find, attract, and hire the best tech professionals for their job postings. While we wait for the overall tech hiring environment to improve, we continue to focus on what we can control, including improving our industry-leading product offerings and our go-to-market engine.
Now let me dig into our performance during the quarter and what we see ahead for 2024. In the fourth quarter, our total revenue declined 6% year-over-year. Dice revenue for the quarter decreased 13% year-over-year, while CJ revenue increased 9%. The decrease in Dice revenue was the result of lower new business bookings and renewals over the past several quarters, as well as continued lower one-time transactional revenue, all of which are a reflection of the uncertain economic environment I have described. Having said that, excluding transactional revenue, our total recurring revenue was up 2% year-over-year in the fourth quarter across the two platforms, and for the full year, our total recurring revenue was up 9% year-over-year. Looking at our bookings performance, while our total bookings were down 4% for both the fourth quarter and the full year, our bookings for our recurring revenue products were up 1% for the quarter and 3% for the full year.
Dice secured several new clients this quarter, including tech systems, Sienna Corporation, and Infosys, as we remain focused on those industries and specific companies that are hiring tech professionals even in today's weakened economic environment. Those industries include aerospace, business consulting, healthcare, financial services, and education. While Dice new business teams continue to see more intense deal scrutiny in this difficult macro environment, we saw a meaningful improvement in our new business team bookings from the third to fourth quarter, including for our Dice commercial accounts team. ClearanceJobs bookings for the fourth quarter increased 15% year-over-year, despite the uncertainty caused by a potential government shutdown.
CJ secured several new clients this quarter, including Sierra Space, Armatron, and Henkels & McCoy. As I mentioned earlier, the most recent National Defense Authorization Act provides for a 3% increase in spending. It was signed midway through December and has started to positively impact the demand for cleared tech professionals. As a result, we expect increased bookings and revenue growth for CJ in 2024. Moving on to account management. Our Dice and CJ revenue renewal rates were 78% and 96% respectively in the fourth quarter. Retention rates for Dice and CJ were 97% and 110% respectively. While we continue to see customer attrition for Dice, it continues to be concentrated with smaller clients that have been more impacted by the macroeconomic environment than our larger accounts.
These smaller accounts typically spend less than $10,000 a year with us. During the fourth quarter, we delivered a 27% adjusted EBITDA margin, which was up significantly from 20% a year ago. In the fourth quarter, we saw the full benefit of the organizational restructuring we announced last year, which included a 10% reduction in workforce that streamlined our team structure and improved our operating margins. During the fourth quarter, we made some additional smaller changes to the sales organization, largely affecting underperforming team members. We also reduced marketing campaigns for new candidates as we benefited from an elevated amount of candidate activity in this weak employment environment. For 2024, we will continue to focus on operating our business efficiently and our targeting of full year adjusted EBITDA margin of 24%.
During the quarter, we continue to strengthen our industry leading product offerings. Dice delivered an improved company search function for candidates, as well as SMS notifications. Dice also introduced programmatic listings, which allow job advertising agencies to digitally feed job opportunities into the Dice platform and pay only for candidate job views and applies, consistent with contracts they have signed with their underlying clients. We also tested new pricing bundles that combined unlimited job postings, a company page, and selected job boosts for harder to fill positions. We believe these bundles have the potential to increase new customer annual contract value and improve our existing customer retention rates. The initial results were positive, and we are continuing to test this new pricing model.
ClearanceJobs continue to develop CJ Live during the quarter. CJ Live will enable employers to create and deliver video based content to boost candidate engagement. In summary, while the difficult economic environment has had a temporary impact on our total revenue growth rate, our recurring revenue continue to grow in the fourth quarter and for the full year. We believe there remains a long-term secular trend for adding more tech workers in the U.S. And as the economic uncertainty recedes, and as companies across all industries continue their investment in technology initiatives, we expect increased demand for our tools that enable companies to attract, find, and hire the right tech professionals for their open positions. Until then, we will continue to focus on improving our products and our go-to-market execution so that we are ready to capitalize on this anticipated increased demand for our tools while doing so in a more efficient and profitable manner.
Lastly, on our past earnings call, we announced the addition of Raime Leeby as our new Chief Financial Officer. What impressed us most about Raime is our virtual skill set, including direct responsibility for F&A, financial operations, tax, treasury, and M&A functions, but also the multitude of times in her career where she saw tough business challenges by taking on additional responsibilities in operations, sales, and strategy roles. Raime started with us early in December and has hit the ground running and is doing a great job. On that note, let me turn the call over to Raime, who will take you through our financials and our guidance, and then we'll take any questions you may have. Raime?
Raime Leeby: Thank you, Art, and good afternoon, everyone. Before I begin, I would like to say that I am very excited to join the amazing team at DHI Group. It is great to join an enterprise that is a leader in its space and has a significant value proposition with its industry-leading product offerings. While I have only been here a couple of months, I can tell you it has been a pleasure to work with Art, our Board of Directors, and the terrific DHI team. I can't wait to help the team continue growing this business, and I look forward to getting to better know our shareholders and the analysts that cover DHI. Now let me take you through our financial results for the quarter. We reported total revenue of $37.3 million, which was down 6% a year-over-year basis and essentially flat versus the prior quarter.
Total bookings for the quarter were $36.1 million, down 4% year-over-year. As Art mentioned, our total recurring revenue was up 2% for the fourth quarter and 9% for the full year, and the bookings that drive our recurring revenue were up 1% for the fourth quarter and 3% for the full year. Dice revenue was $24.6 million, which was down 13% year-over-year and down 1% sequentially. Dice bookings were $22.2 million, down 14% year-over-year. We ended the quarter with 5,492 Dice recruitment package customers, which is down 5% from last quarter and down 13% year-over-year. Our average annual revenue per Dice recruitment package customer was up 2% sequentially and up 3% year-over-year to $15,788. Approximately 90% of Dice revenue is recurring and comes from annual or multi-year contracts.
For the quarter, our Dice revenue renewal rate was 78% and our retention rate was 97%. ClearanceJobs revenue was $12.7 million, up 9% year-over-year and flat sequentially. Bookings for CJ were $13.9 million, up 15% year-over-year. We ended the fourth quarter with 2,055 CJ recruitment package customers, which was flat on both the sequential and year-over-year basis. Our average annual revenue per CJ recruitment package customer was up 10% year-over-year and up 2% sequentially to $21,872. Approximately 90% of CJ revenue was recurring and comes from annual or multi-year contracts. For the quarter, CJ's revenue renewal rate was up sequentially to 96% and CJ's retention rate was strong at 110%. The outstanding retention rate demonstrates the continued value CJ delivers in the recruitment of cleared professionals.
Turning to operating expenses, fourth quarter operating expenses were down 13% to $33.8 million when compared to $39 million in the year-ago quarter. As with the third quarter, our fourth quarter operating expenses reflect a full quarter of the cost savings associated with the May restructuring, which is expected to generate annual cost savings of approximately $8 to $10 million. As Art mentioned, during the fourth quarter, we made some additional smaller changes to the sales organization, largely affecting underperforming team members. Also, during the fourth quarter, we reduced marketing campaigns for new candidates as we are benefiting from an elevated amount of activity from candidates in this weak employment environment. For the quarter, we had income tax expense of $563,000 on income before taxes of $2.7 million.
Our tax rate for the quarter differed from our approximate statutory rate of 25% due primarily to the reversal of liabilities for uncertain tax positions as federal and state statutes expired. We recorded net income of $2.1 million or $0.05 per diluted share. For the prior year quarter, we reported a net income of $2.4 million or $0.05 per diluted share. Adjusted diluted earnings per share for the quarter were $0.04 compared to $0.01 for the prior year quarter. Diluted shares outstanding for the quarter were $44.6 million compared to $46.1 million in the prior year quarter. Adjusted EBITDA for the fourth quarter increased 24% to $10.1 million, a margin of 27%, compared to $8.1 million or a margin of 20% in the fourth quarter a year ago. Operating cash flow for the fourth quarter was $7.6 million compared to $7.3 million in the prior year period.
From a liquidity perspective, at the end of the quarter, we had $4.2 million in cash and total debt of $38 million under our $100 million revolver. Total debt outstanding decreased $2 million from $40 million at the end of the third quarter. We continue to target approximately one times leverage for the business. Deferred revenue at the end of the quarter was $50 million, down 2% from the fourth quarter of last year. Our total committed contract backlog at the end of the quarter was $108.1 million, which was down 8% from the end of the fourth quarter last year. Short-term backlog was $89.8 million at the end of the fourth quarter, a decrease of $1.7 million or 2% year-over-year. Long-term backlog, that is revenue to be recognized in 13 or more months, was $18.3 million at the end of the quarter, a decrease of $7.5 million or 29% from the prior year quarter as the average length of our multi-year contract decreased.
During the quarter, we did not purchase shares under our share buyback program. For the year, we repurchased $1.7 million shares for $6.9 million under our repurchase program and we purchased $1.2 million shares for $6.2 million to cover income tax withholdings associated with the vesting of employee shares. As a reminder, our $10 million program began in the first quarter of 2023 and runs through February 2024. Of the $10 million authorized, $4.8 million remained available under the program at the end of the quarter. Moving on to guidance, while we saw signs of an improved bookings environment across all of our new business teams in the fourth quarter, we do not expect total bookings growth to return until the second half of 2024, which we expect to result in a low single-digit percentage decline in our total revenue for the full year.
From a profitability perspective, we are targeting a full-year adjusted EBITDA margin of 24%. However, we anticipate our first quarter adjusted EBITDA margin will be lower due to seasonal costs that more heavily impact the first quarter, such as certain payroll taxes. We remain focused on driving long-term, sustainable revenue growth and our well-positioned from a customer acquisition perspective to return to growth when the economy begins its recovery and tech hiring improves. To wrap up, while the current hiring environment is impacting our growth, we expect companies across all industries to continue their investment in technology initiatives, which we believe will drive increased demand for our products and services as the economy improves.
In the meantime, we are focused on improving our industry-leading offerings and our go-to-market execution so we are ready to capitalize on the anticipated return of tech hiring. And with that, let me turn the call back to Art.
Art Zeile: Thank you, Raime. I'd like to thank all of our employees again for their hard work this past year. It is an absolute pleasure to be part of such a great team. With that, we're happy to take your questions.
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