Dice Turnaround Has DHI Group On a Roll

DHI Group, Inc. (DHX) posted strong Q4 ’21 results, exceeding our estimates and consensus as revenue growth accelerated for the third consecutive quarter and was again outpaced by robust bookings growth across both the Dice and ClearanceJobs platforms. More specifically, both Dice and ClearanceJobs delivered revenue growth in excess of 20% Y/Y and saw bookings growth of 35% Y/Y. Across both platforms, key customer metrics such as the number of recruitment package customers at quarter-end and the average monthly revenue per customer also moved up and to the right, and retention rates remained much improved from both year-ago and pre-pandemic levels. Although expenses ran higher than we modeled, the upside in revenue still drove adjusted EBITDA slightly above our estimate and the Street’s.

Stepping back, DHI Group’s growth trajectory exiting FY ‘21 marks a successful conclusion to management’s efforts to reverse a multi-year decline at Dice, and the company is now squarely focused on sustaining strong growth moving forward. In this regard, management’s Q1 guidance for revenue growth of 20%-23% was ahead of Street expectations and commentary for strong double-digit revenue growth in FY ’22 also suggests upward revisions for the year are in order. We were previously projecting high-teens growth in Q1 and low double-digit growth for the year. Turning to margins, management plans to maintain an adjusted EBITDA margin at or near 20%, which was generally consistent with both our estimates and consensus heading into the print. The limited margin expansion anticipated for the year coincides with plans for another 20% increase in quota-carrying sales capacity; ongoing marketing investments to drive greater brand awareness, candidate engagement and qualified leads; and ensuring high employee retention.

As we were already assuming FY ’22 would mark a new phase of accelerating growth and investments, we are increasing our estimates just slightly at this juncture. That said, the favorable backdrop presented by “The Great Resignation” and ongoing recovery from the COVID-19 pandemic leave DHI Group well positioned to continue its recent string of outperformance, in our opinion, and we believe the company still has a long runway to drive customer adoption of its technology career marketplaces. With shares of DHX trading at just over 2x forward sales, we still think the stock is undervalued given the company’s high mix of recurring revenues, accelerating top line growth and strong cash flow generation. Our price target remains $8.00 based on an unchanged FY ’22 EV/Sales multiple of approximately 3x.

Exhibit I: Reported Results Versus Expectations

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

Q4 revenues were $33.7 million (+24.8% Y/Y), above our estimate of $31.9 million and consensus of $32.2 million. Revenues from Dice totaled $24.4 million (+25.6% Y/Y), exceeding our estimate of $23.1 million. Revenues from ClearanceJobs were $9.4 million (+22.9% Y/Y), also exceeding our estimate of $8.8 million. More importantly, both Dice and ClearanceJobs bookings increased over 35% Y/Y to $25.9 million and $10.3 million, respectively, setting the stage for continued strong revenue growth in the quarters to come. The robust bookings reflected continued growth in recruitment package customers across both platforms, revenue retention rates at or above management’s targeted ranges and strong customer demand for ancillary services such as sourcing.

Exhibit II: Key Metrics

Sources: DHI Group; K. Liu & Company LLC

Gross margin of 88.1% was above our 87.5% assumption and increased both sequentially and Y/Y. Total operating expenses ran higher than we modeled, primarily reflecting higher than anticipated investments in product development and sales and marketing. Still, the upside in revenue more than offset the higher expenses, resulting in adjusted EBITDA of $7.1 million (21.0% margin) versus our estimate of $6.6 million and consensus of $6.7 million. EPS of breakeven were in line with our estimate but a penny below consensus.

Cash at the end of Q4 totaled $1.5 million, while debt outstanding stood at $22.7 million. In Q4, DHI Group generated $3.0 million in cash from operations, used $3.6 million for capital expenditures and repurchased 960,000 shares for $5.2 million.

Turning to Q1, management’s guidance calls for $32.0-$33.0 million in revenues, reflecting growth of 20%-23% Y/Y. Prior to revisions, we were projecting $31.6 million in revenues while consensus was at $31.3 million. For the full year, management’s guidance calls for strong double-digit revenue growth, implying $132.0 million (+10% Y/Y) at a minimum and suggesting both our prior estimate and the Street’s have room to rise. Management also anticipates maintaining an adjusted EBITDA margin at or near 20% throughout FY ’22.

Exhibit III: Estimate Revisions

Source: K. Liu & Company LLC

Reflecting the strong bookings performance in Q4, we raise our revenue estimates slightly for Q1 and FY ‘22. While we were already assuming margin expansion would be more muted in the near-term as DHI Group continues to invest in future growth, our forecast for operating expenses also moved higher to account for the run-rate exiting FY ’21. All told, our adjusted EBITDA estimates tick up ever so slightly for the year while our EPS estimate remains unchanged. Our FY ’23 estimates increase to a greater degree due to higher projected recurring revenues entering the year and an uptick in our bookings growth expectations for both Dice and ClearanceJobs, partially offset by higher operating expenses.

Our report with model and disclosures 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.