Highlights from Virtual Investor Day

DHI Group, Inc. (DHX) hosted a virtual investor day during which management highlighted a significant total addressable market opportunity, committed to maintaining the “Rule of 40,” previewed the launch of a new corporate branding offering, expressed confidence in sustaining strong performance in key go-to-market metrics, and raised its guidance for FY ‘22. Although no formal guidance was proffered beyond the current year, DHI Group expects both bookings and revenue growth to remain near 20% in FY ’23 and suggested that its adjusted EBITDA margin could approach 30% over the long-term. We increase our estimates for this year and next, and we raise our price target from $8.50 to $10.50 based on a FY ’23 EV/Sales multiple of 3x. We note that our prior target reflected the same multiple but applied to our FY ’22 estimates. DHX shares have reacted oddly to the company’s consistently strong results thus far in FY ’22, although we are hopeful that the latest upward revision to guidance could finally reverse that trend. In any event, we believe shares are significantly undervalued and could move meaningfully higher as management executes against its stated growth and margin objectives.

DHI Group’s two online career marketplaces, Dice and ClearanceJobs, now boast over 6 million technologist profiles in aggregate, representing a significant pool of candidates for recruiters looking to fill approximately 500,000 open technology positions. With the unemployment rate among technologists below 2% and only 100,000 new computer science graduates entering the pool each year, the demand for technology talent is expected to remain 2x greater than the available supply. In other words, the market for technology talent will remain tight for the foreseeable future, creating a favorable backdrop for sales of Dice and ClearanceJobs recruitment packages. To illustrate the sizeable opportunity ahead, management noted that there are 86,803 commercial entities with at least ten open technology positions on their career websites. Assuming each subscribes to Dice at the current average annual contract value of $14,304, this would represent a total addressable market opportunity of $1.24 billion. Of course, Dice also has a meaningful opportunity selling to some 18,000 staffing and recruiting firms, while ClearanceJobs caters to another 10,000 cleared employers in the U.S. as well as the defense and intelligence agencies they serve. Clearly, DHI Group still has a long runway for growth.

To execute against this massive opportunity, new go-to-market leaders were put in place several years ago and investments were made to increase brand awareness, grow the number of marketing qualified leads (MQLs) and expand sales capacity. Beginning in Q2 ’21, DHI Group saw an inflection in its key performance metrics, including a meaningful increase in net new subscribers, substantial improvement in customer and net revenue retention rates, and a return to positive bookings growth, all of which have improved further thus far in FY ‘22.

Moving forward, management plans to continue building upon the foundation now in place. The company is investing in brand awareness campaigns, not only targeting employers but also to attract more technologists earlier in their careers to the Dice platform. In essence, management is attempting to balance both the number of candidates and the number of active employers, thereby creating a positive network effect. Delivering more MQLs to the sales team also remains a focal point. In this regard, management indicated that MQLs have increased over 50% Y/Y and a growth rate of 20% should be sustainable over time. As the company aims to convert 40% of MQLs to new business bookings, we believe the strong growth in MQLs should translate into robust bookings growth in the near-term. Also notable, 17% of DHI Group’s customers are now on multi-year contracts with built-in pricing escalators. Per management, 95% of contracts today have auto-renewal clauses with pricing escalators averaging 5% but with new contracts carrying increases of 10%, that should move higher over time. Needless to say, a double-digit increase in revenue from existing customers would provide significant visibility into management’s aspirations for 20% growth over the long-term. That said, the primary gating factors to growth at this juncture appear to be management’s desire to sustain an adjusted EBITDA margin of at least 20% and the need for a balanced approach to increasing the number of candidates and job postings.

Although DHI Group’s financial commentary was generally consistent with what we have heard in the past, management reaffirmed its prior Q3 revenue guidance of $37.0-$38.0 million and raised its FY ’22 revenue guidance from $145.0-$147.0 million to $148.0-$149.0 million. The higher outlook for the year implies Q4 revenue growth of 17% at the midpoint versus the low-teens range implied previously. We surmise the prior guide was intended to be conservative, and the upward revision was likely forthcoming during the next earnings call. Regardless, the formal change should hopefully assuage any concerns that the improved bookings performance of late will be fleeting. Importantly, management also suggested that both revenue and bookings growth should remain near 20% in FY ’23 with adjusted EBITDA margin also holding firm around 20%, thereby sustaining the “Rule of 40.” Aside from a continuation of strong renewal rates and net new customer growth, DHI Group also believes a corporate branding solution expected to launch in FY ’23 could be a meaningful contributor to growth in average deal sizes. Considering these dynamics, we raise our FY ’22 and FY ’23 revenue estimates from $146.9 million and $170.2 million to $148.5 million and $173.8 million, respectively. Our adjusted EBITDA estimates also increase in concert from $29.3 million to $30.0 million in FY ’22 and from $36.2 million to $38.8 million in FY ’23.

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.