Hot Streak Continues in Q1 '22; Raising Price Target from $8.00 to $8.50

DHI Group, Inc. (DHX) reported stellar Q1 ’22 results, beating our estimates and consensus. Much like last quarter, revenue growth again accelerated and bookings rose at an even faster rate across both the Dice and ClearanceJobs platforms. This time around, both Dice and ClearanceJobs posted revenue growth in excess of 25% Y/Y and saw bookings growth north of 30% Y/Y. Moreover, key customer metrics across both platforms, including the number of recruitment package customers at quarter-end, the average monthly revenue per customer, and revenue retention rates all exceeded our assumptions, further bolstering the impressive start to the year. Operating expenses ran higher than we modeled, principally due to higher sales and marketing expenses, but we think investors ought to be pleased with the investments given the returns already apparent in the results of late. Regardless, the strong top line performance still translated into upside on the adjusted EBITDA and EPS lines.

Considering the robust bookings growth in Q1, strong revenue retention rates and momentum in new customer acquisition, management guided Q2 revenue above our estimate and consensus and raised its FY ’22 revenue outlook. For Q2, management’s guidance implies Y/Y revenue growth of 22%-25%, and for FY ’22, guidance now reflects revenue growth of at least 20% versus the less specific “strong double-digit growth” outlook provided previously. As for adjusted EBITDA, prior expectations for a margin at or near 20% for the full year were reaffirmed, not surprising given the opportunity to reinvest for growth but still representing upside to Street expectations. In our view, management’s targets appear conservative and should allow for more opportunities to beat and raise as the year progresses

Given the strong start to the year, we raised our revenue estimates for this year and next. Even with a fairly sizeable step-up in our assumptions for sales and marketing expenses, our profitability expectations also move up slightly. Reflecting the increase in our estimates, our price target rises from $8.00 to $8.50 based on an unchanged FY ’22 EV/Sales multiple of approximately 3x. We had expected shares of DHX to shoot higher following a strong finish to FY ’21 but the stock ultimately fell amid broader weakness. With the impressive start to FY ’22, the bull case is that much more compelling, and we still believe an attractive entry point is at hand. Labor market conditions remain tight, especially for technology talent as evidenced by a record 1.1 million job postings in Q1 and an unemployment rate of just 1.3% among technologists in March. Defense spending in the U.S. is also poised for an increase, providing yet another tailwind for the ClearanceJobs platform. Between favorable macro tailwinds and DHI Group’s strong execution, we continue to see significant upside in shares.

Exhibit I: Reported Results Versus Expectations

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

Q1 revenues of $34.3 million (+28.7% Y/Y) exceeded management’s guidance of $32.0-$33.0 million, our estimate of $32.5 million and consensus of $32.3 million. Revenues from Dice totaled $24.6 million (+29.3% Y/Y), well above our estimate of $23.2 million. Revenues from ClearanceJobs of $9.7 million (+27.2% Y/Y) also exceeded our estimate of $9.3 million. More importantly, both Dice and ClearanceJobs bookings increased over 30% Y/Y to $36.8 million (+31.8% Y/Y) and $13.9 million (+30.9% Y/Y), respectively. The robust bookings reflected strong new business momentum at Dice, particularly among commercial clients; steady increases in average monthly revenue per customer; and a 104% revenue retention rate across both platforms.

Exhibit II: Key Metrics

Sources: DHI Group; K. Liu & Company LLC

Gross margin of 88.1% was above our 87.7% assumption and increased 200 basis points from the prior year period. Total operating expenses ran higher than we modeled, primarily reflecting higher than anticipated investments in sales and marketing. Nonetheless, the upside in revenue more than offset the higher expenses, resulting in adjusted EBITDA of $6.9 million (20.2% margin) versus our estimate of $6.2 million and consensus of $6.1 million. EPS of $0.03 also beat our estimate and consensus of $(0.01).

Cash at the end of Q1 totaled $5.0 million, while debt outstanding stood at $32.8 million. In Q1, DHI Group generated $9.2 million in cash from operations, used $4.1 million for capital expenditures and repurchased 1.3 million shares for $7.5 million, or an average price of $5.78 per share.

Looking forward, management’s Q2 guidance calls for $35.0-$36.0 million in revenues, reflecting Y/Y growth of 22%-25%. Prior to revisions, we were projecting $34.1 million in revenues while consensus was at $33.5 million. For the full year, management’s guidance for revenue of $144.0-$146.0 million implies Y/Y growth of 20%-22% and indicates that our prior estimate of $140.3 million and the Street’s $138.0 million need to move higher. Management also reaffirmed its prior FY ’22 expectations for an adjusted EBITDA margin at or near 20%.

Exhibit III: Estimate Revisions

Source: K. Liu & Company LLC

We raise our revenue estimates for Q2 and beyond to reflect an uptick in our assumptions for bookings growth. Given the strong growth of late, we assume much of the revenue upside will be reinvested in sales and marketing as DHI Group still has ample opportunity to penetrate commercial accounts with Dice and government agencies with ClearanceJobs, while further establishing these platforms among staffing firms and government contractors, respectively. As such, our adjusted EBITDA estimates for this year and next increase more modestly, and our EPS estimates also move slightly higher.

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.