Reports Q3 Results Largely As Expected

DHI Group (DHX) reported Q3 ’24 results generally in line with Street expectations. Revenue was consistent with our estimates and consensus, reflecting a double-digit decline at Dice, partially offset by mid-single digit growth at ClearanceJobs. Bookings were just shy of our forecast as reduced commitments from large staffing customers weighed on revenue renewal rates. However, we were pleased to see a sequential uptick in both new business and transactional bookings. Gross margin was slightly ahead of our model, which combined with lower operating expenses resulted in adjusted EBITDA exceeding our estimates and consensus.

Between the slight dip in renewal rates and limited recovery in labor markets thus far, management guided Q4 revenue below Street expectations. Regardless, DHI Group remains on track to achieve an adjusted EBITDA margin of 24% for the year. Perhaps more glaring, Q4 guidance for an 8% to 10% decline in bookings was softer than we anticipated, although management continues to expect a return to growth in the coming year. Overall, we view the guidance as appropriately conservative in light of the company’s performance to date and only nascent signs of an improving job market for technologists. That said, renewed Y/Y growth in new job postings, another interest rate cut and the removal of election uncertainty appear to be translating into a more favorable selling environment.

Aside from the results and outlook, the departure of CFO Raime Leeby at the end of this week was the most notable new development. She has accepted a new opportunity with a former employer, and in her stead, Greg Schippers has been named Interim CFO. Mr. Schippers currently serves as DHI Group’s Vice President of Finance and Controller and has been with the company for over ten years. We believe that he is in the pole position to formally assume the permanent CFO role.

Although our estimates move marginally lower for this year and next, we continue to anticipate a return to positive bookings growth exiting the first half of FY ‘25. Our initial FY ’26 projections therefore reflect mid-single digit revenue growth along with renewed margin expansion. Based on an unchanged FY ’25 EV/Sales multiple of 2.0x, our price target declines slightly from $5.25 to $5.00. All told, we maintain our view that shares of DHX are significantly undervalued. We acknowledge that the shift from the Great Resignation to the Big Stay has been a bit of a slog for investors over the past two years, but we believe the tone of business has improved markedly in the initial days post-election, thereby increasing the potential for an upside surprise sooner rather than later. More importantly, DHI Group has consistently introduced new features across its two-sided marketplaces and increased its engagement with candidates throughout this downturn, positioning the company to benefit in the ensuing recovery.

Exhibit I: Reported Results and Guidance Versus Expectations

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

Q3 revenue of $35.3 million (-5.7% Y/Y) was consistent with our estimate of $35.2 million and consensus of $35.3 million. Revenue from Dice of $21.9 million (-11.7% Y/Y) was modestly above our $21.7 million projection, while revenue from ClearanceJobs of $13.4 million (+5.9% Y/Y) was in line with our projection.

Dice bookings of $16.3 million (-14.7% Y/Y) were short of our $17.0 million projection due to lower than anticipated renewals. Per management, Dice’s revenue renewal rates were impacted by large staffing customers reducing their usage rates. We note, however, that lower usage today could portend greater top-up fees a few quarters from now if the market for technologists improves as anticipated. Trends across other key metrics largely mirrored those in recent quarters with the customer count declining due to churn at smaller clients, but average revenue per customer increasing. That said, we were encouraged to hear that renewal rates among commercial clients outperformed internal expectations, and newly acquired customers included the likes of Blue Origin, D.R. Horton and Perdue Farms.

ClearanceJobs bookings of $12.6 million (+4.1% Y/Y) were approximately in line with our $12.7 million forecast. Although still positive, growth at ClearanceJobs has largely trailed our expectations thus far in FY ‘24, owing in part to uncertainty over government funding earlier in the year and the elections more recently. With the elections now behind us, we surmise the outlook for ClearanceJobs is brighter given the boost to defense spending from ongoing geopolitical conflicts and as Republicans appear likely to control both the House and Senate, which in theory should remove the threat of government shutdowns and short-term continuing resolutions that have persisted of late. Also worth noting, ClearanceJobs is developing a new offering called Verify, which will provide candidates with clarity on the status of their clearances. This is the company’s first foray into direct monetization with candidates and could provide a boost to transactional revenues once launched.

Exhibit II: Key Metrics

Sources: DHI Group; K. Liu & Company LLC

Gross margin of 85.6% was ahead of our 85.1% assumption, and total operating expenses were below our estimate, primarily reflecting lower sales and marketing expenses than we projected. As a result, adjusted EBITDA of $8.6 million (24.4% margin) beat our estimate of $8.2 million and consensus of $8.3 million. EPS of breakeven beat our estimate by a penny and were in line with consensus.

In Q3, DHI Group generated $5.5 million in cash flow from operations and used $3.2 million for capital expenditures. Cash at quarter-end totaled $2.1 million, while outstanding debt declined from $35.0 million to $32.0 million.

Management’s Q4 guidance calls for a revenue decline of 7%-8%, implying revenue of $34.3-$34.7 million. Prior to revisions, we were projecting Q4 revenue of $35.8 million, while consensus stood at $36.0 million. Management continues to guide for a FY ’24 adjusted EBITDA margin of 24%.

Exhibit III: Estimate Revisions

Source: K. Liu & Company LLC

Reflecting a downtick in our bookings assumptions, we lower our revenue estimates for this year and next. We now expect bookings growth to return to positive levels in Q2 ’25, or one quarter later than we previously assumed. Although our projections for operating expenses also decline slightly, the net effect is a slight decrease in our adjusted EBITDA and EPS estimates. We also introduce our FY ’26 forecasts, which call for revenue growth of 4.3% Y/Y to $143.1 million and adjusted EBITDA of $35.1 million (24.5% margin).

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.