Another Hurdle Cleared in Q3 ‘22

DHI Group, Inc. (DHX) reported Q3 ’22 results above expectations. Both Dice and ClearanceJobs again exhibited strong revenue growth driven by the addition of net new recruitment package customers, a steady uptick in average revenue per customer and high revenue retention rates. Bookings were largely in line with our expectations, a positive given concerns that increasing economic uncertainty and a cooling labor market could weigh on demand. Per management, sales cycles may be somewhat longer than seen earlier in the year, but any change is measured in days. In other words, the market for technology talent remains tight, demand for DHI Group’s talent acquisition platforms remains robust, and the outlook for sustained growth remains intact. Perhaps the only significant variance versus our assumptions pertained to the number of net new Dice recruitment package customers in the quarter. In this regard, management has tasked its sales force to focus on larger, more stable customers given the present macro uncertainty. As a result, the average contract size is rising but the number of customers comprising the new business is falling. Below the top line, total costs and expenses were generally in line with our expectations, so the upside on revenue translated into an adjusted EBITDA beat.

Despite raising its FY ’22 guidance less than two months ago, management increased its revenue expectations once more. The revised outlook implies Q4 revenue consistent with Street expectations heading into the print, and we posit that management is again employing a degree of conservatism to keep its streak of “beat-and-raise” alive and well. Guidance also continues to call for an adjusted EBITDA margin of approximately 20%. Overall, there was nothing particularly surprising about the guidance, and given plans for further investments in sales and marketing moving forward, we believe management sees 2023 as another year of strong growth for the company.

Our revenue and adjusted EBITDA estimates edge higher for FY ’22 and remain unchanged for FY ‘23. Reflecting expectations for higher interest expenses following yesterday’s rate hike, our EPS estimates decline slightly for both this year and next. We also introduce our estimates for FY ’24, which call for mid-teens revenue growth and an adjusted EBITDA margin in the mid-20% range. In our view, DHI Group has all the hallmarks of a compelling stock – favorable end market conditions, a long runway for growth, high levels of recurring revenues, consistent execution and an attractive valuation. Our price target remains $10.50 based on an unchanged FY ’23 EV/Sales multiple of approximately 3x.

Exhibit I: Reported Results Versus Expectations

Sources: DHI Group; K. Liu & Company LLC; FactSet Estimates

Q3 revenues of $38.5 million (+25.3% Y/Y) exceeded management’s guidance of $37.0-$38.0 million, our estimate of $37.5 million and consensus of $37.4 million. Both Dice revenues of $27.3 million (+22.8% Y/Y) and ClearanceJobs revenues of $11.2 million (+31.8% Y/Y) were above our estimates of $26.8 million and $10.7 million, respectively. Dice bookings totaled $25.0 million (+16.7% Y/Y) versus our estimate of $25.2 million, and ClearanceJobs bookings were $11.5 million (+22.8% Y/Y) compared with our $11.6 million forecast. The strong growth in revenue and bookings reflected net new recruitment package customers of 23 and 54 for Dice and ClearanceJobs, respectively; higher average revenue per customer; and high-90% revenue retention rates across both platforms.

Exhibit II: Key Metrics

Sources: DHI Group; K. Liu & Company LLC

Gross margin of 88.2% was 50bps below our 88.7% assumption, while total operating expenses were in line with our estimate. Reflecting the upside in revenue, adjusted EBITDA of $8.1 million (21.1% margin) beat our estimate of $7.3 million and consensus of $7.5 million. EPS of $(0.02) were below our estimate of breakeven and consensus of $0.01 due to a non-cash impairment charge for DHI Group’s investment in The Muse.

Cash at the end of Q3 totaled $3.8 million, while debt outstanding remained unchanged at $30.0 million. In Q3, DHI Group generated $9.2 million in cash from operations, used $4.9 million for capital expenditures and repurchased 719,777 shares for $3.8 million, or an average price of $5.25 per share.

Turning to guidance, management’s Q4 expectations include $38.5-$39.5 million in revenues. Prior to revisions, we were projecting $39.6 million in revenues while consensus was at $39.1 million. Guidance also assumes DHI Group maintains an adjusted EBITDA margin at or near 20%, consistent with management’s prior expectations.

Exhibit III: Estimate Revisions

Source: K. Liu & Company LLC

Our revenue and adjusted EBITDA estimates tick up slightly for FY ’22 due to the upside in Q3 but remain unchanged for FY ‘23. Reflecting higher interest expense assumptions, our EPS estimates decline slightly for Q4 and FY ’23. We also introduce our FY ’24 projections, which include revenues of $199.8 million (+14.9% Y/Y) and adjusted EBITDA of $49.8 million (24.9% margin).

Our report with model and disclosure is available here.

Disclosure(s): K. Liu & Company LLC (“the firm”) receives or intends to seek compensation from the companies covered in its research reports. The firm has received compensation from DHI Group, Inc. (DHX) in the past 12 months for “Sponsored Research.”

Sponsored Research produced by the firm is paid for by the subject company in the form of an initial retainer and a recurring monthly fee. The analysis and recommendations in our Sponsored Research reports are derived from the same process and methodologies utilized in all of our research reports whether sponsored or not. The subject company does not review any aspect of our Sponsored Research reports prior to publication.