Reports Strong Q2 '22 Results and Raises Outlook for FY '22

DHI Group, Inc. (DHX) delivered another strong quarter, easily clearing our estimates and consensus. Total revenue growth again approached 30% Y/Y with bookings growth across both the Dice and ClearanceJobs platforms well into the mid-20% range. Per management, a significant gap in the supply of and demand for technologists continues to fuel increasing adoption of the company’s recruiting tools. Key customer metrics for Dice and ClearanceJobs also remained healthy and were ahead of our assumptions, aside from net new recruitment package customers for Dice. Regarding the Dice customer count, we believe the variance relative to our model largely reflects some seasonality that was not factored into our projection and considering Dice bookings were still comfortably ahead of our estimate, the average deal size is clearly moving higher. While operating expenses were above our estimates, the upside in revenue still enabled DHI Group to beat on the bottom line.

Although talk of recession, hiring freezes and layoffs across the technology sector have dominated headlines of late, management indicated that there are no signs of a slowdown in the demand for technologists more broadly. Indeed, over 500,000 IT job postings were posted in June alone according to CompTIA, representing an increase of 62% Y/Y. For DHI Group, conversion of marketing qualified leads to customers remains high, and there has been nothing to suggest that the company’s business momentum of late is slowing. As such, management plans to further increase investments in sales and marketing and remains committed to adding five new sales reps each quarter. Against this backdrop, management guided Q3 revenue ahead of our estimates and consensus and raised its guidance for FY ‘22. The outlook for the year remains conservative, in our view.

Our estimates tick up nominally for FY ’22, reflecting a slight increase in our revenue forecast largely offset by higher expenses. For FY ’23, we maintain our prior estimates. Given the divergence in how DHI Group has performed from a business standpoint in recent quarters (exceptionally) and how DHX shares have subsequently traded (depressingly), we remain adamant that a compelling investment opportunity has presented itself. With labor market conditions still tight and ample whitespace for DHI Group to expand its subscriber base, we believe the stock will ultimately reflect the company’s strong fundamentals. Our price target remains $8.50, representing an unchanged FY ’22 EV/Sales multiple of approximately 3x.

Exhibit I: Reported Results Versus Expectations

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

Q2 revenues of $37.1 million (+29.0% Y/Y) exceeded management’s guidance of $35.0-$36.0 million and our estimate and consensus of $35.6 million. Dice revenues totaled $26.8 million (+30.3% Y/Y), well above our estimate of $25.4 million, while ClearanceJobs revenues of $10.2 million (+25.8% Y/Y) were in line with our estimate. Bookings from both Dice and ClearanceJobs exceeded our estimates, coming in at $25.6 million (+26.9% Y/Y) and $9.7 million (+26.5% Y/Y), respectively, versus our projections of $24.0 million and $9.0 million. The strong bookings reflected net new recruitment package customers of 137 and 48 for Dice and ClearanceJobs, respectively; higher average monthly revenue per customer; and a solid 99% revenue retention rate across both platforms.

Exhibit II: Key Metrics

Sources: DHI Group; K. Liu & Company LLC

Gross margin of 88.7% was ahead of our 88.1% assumption and increased 120 basis points from the prior year period. Total operating expenses were above our estimate due to higher than anticipated general and administrative expenses, and to a lesser extent, higher than anticipated product development costs. Regardless, the upside in revenue more than offset the higher expenses, resulting in adjusted EBITDA of $7.8 million (21.1% margin) versus our estimate of $7.1 million and consensus of $7.3 million. EPS of $0.03 also beat our estimate and consensus of $0.01.

Cash at the end of Q2 totaled $3.6 million, while debt outstanding stood at $30.0 million. In Q2, DHI Group generated $10.2 million in cash from operations, used $4.4 million for capital expenditures and repurchased 625,006 shares for $3.7 million, or an average price of $5.94 per share.

Turning to the outlook, management’s Q3 guidance calls for $37.0-$38.0 million in revenues. Prior to revisions, we were projecting $36.9 million in revenues while consensus was at $36.5 million. For the full year, management raised its revenue guidance by $1.0 million to a range of $145.0-$147.0 million and reaffirmed its prior expectations for an adjusted EBITDA margin at or near 20%.

Exhibit III: Estimate Revisions

Source: K. Liu & Company LLC

We raise our revenue estimates slightly for FY ’22 to reflect the strong performance in Q2. As our operating expense assumptions also move higher, our adjusted EBITDA and EPS estimates remain relatively unchanged for the year. For FY ’23, we maintain our prior estimates, which already incorporate sustained double-digit growth in revenues along with some margin expansion.

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.