Good afternoon, and welcome to the DHI Group’s Fiscal 2021 Second Quarter Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Todd Kehrli of MKR Investor Relations. Please go ahead..

Thank you, operator. Good afternoon, and welcome to DHI Group’s fiscal 2021 second quarter earnings conference call. With me on today’s call are DHI’s CEO, Art Zeile; and Chief Financial Officer, Kevin Bostick. Before I turn the call over to Art, I’d like to cover a few quick items.

This afternoon, DHI issued a press release announcing its fiscal 2021 second quarter financial results. The release is available on the company’s website at dhigroupinc.com. This call is being broadcast live over the Internet for all interested parties, and the webcast will be archived on the Investor Relations page of the company’s website.

I want to remind everyone that during today’s call, management will make forward-looking statements that involve risks and uncertainties. Please note that except for historical information, statements on today’s call may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934.

When used, the words anticipate, believe, expect, intend, future, and other similar expressions identify forward-looking statements.

These forward-looking statements reflect DHI management’s current views concerning future events and financial performance and are subject to risks and uncertainties, and actual results may differ materially from the outcomes contained in any forward-looking statements.

Factors that could cause these forward-looking statements to differ from actual results include delays in development, marketing or sales, the adverse impact of and uncertainties surrounding the COVID-19 pandemic, and other risks and uncertainties discussed in the company’s periodic reports on Form 10-K and 10-Q and other filings with the Securities and Exchange Commission.

DHI undertakes no obligation to update or revise any forward-looking statements. Lastly, during today’s call, management will be referring to specific financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted earnings per share, and net debt that are not prepared in accordance with U.S. GAAP.

Information about and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release and on our website at dhigroupinc.com in the Investor Relations section. With that, I’ll now turn the conference call over to Art Zeile, CEO of DHI Group..

Thank you, Todd. Good afternoon, everyone, and welcome to our fiscal 2021 second quarter earnings conference call. Thank you for joining us today. Before we begin, I want to remind everyone that we completed the spinoff of a majority of our eFinancialCareers business on June 30 to the eFC management team.

With the disposition of eFC, DHI is now solely focused on the technology career marketplace in the United States through our two brands, Dice and ClearanceJobs. We believe this focus will allow us to accelerate our bookings and revenue growth and further drive product excellence in both our remaining platforms. Turning to Dice and CJ.

I will provide highlights of the quarter, and then I’ll dig deeper into our sales performance and our expectations for increased revenue growth in the second half of the year. I’m pleased to report another strong quarter of bookings for DHI.

Our bookings strengthened across all teams throughout the quarter, and we ended the period with total bookings growth of 23% year-over-year. As a result of our strong bookings performance, DHI returned to total revenue growth year-over-year, a quarter earlier than expected and for the first time in several years.

The second quarter represents a revenue inflection point for DHI Group as we have turned the corner and are now on an upward revenue growth trajectory.

We created the industry-leading online marketplace for matching companies with the highest quality tech professionals and with enterprises focused on tech enabling their businesses, we are poised to benefit from the millions of new technologists’ jobs expected over the next five years.

Now let me dig into our brands and their performance during the quarter and where we see them heading this fiscal year. Let’s start with Dice, which is our largest opportunity for revenue growth. Tech job postings continue to increase in the second quarter.

According to CompTIA, job postings for open IT positions surpassed 365,000 in May, the highest monthly total since September of 2019. An employer search for new tech talent reached a level not seen in nearly two years.

These stats indicate significant job hosting activity and support the Microsoft report issued last summer that predicts that worldwide digital jobs will grow from $41 million in 2020 to $190 million in 2025. Today, there are approximately 3,000 companies in the United States that have 20 or more open tech job postings.

One of the strongest indicators of the continuing strength in tech hiring is the increased activity across the top 50 companies hiring in the United States. During the second quarter, 82% of these organizations increased their hiring compared to the first quarter.

These companies hailed from a number of different sectors, including tech, defense, healthcare, and finance. Individual companies and the staffing and recruiting firms that service them will need tools like Dice to find qualified candidates to fill these millions of new tech jobs.

As a result of this rebound in tech hiring, we saw our Dice bookings and revenue renewal rates increase substantially in the second quarter. Our bookings for Dice increased 25% year-over-year, and our revenue renewal rate increased to 89%, a sequential improvement of 7 percentage points versus first quarter.

As I’ve said before, we spend 2019 and 2020, building a better product. And now in 2021, we are capitalizing on that product innovation through accelerated sales and marketing efforts. As a SaaS-based business, our revenue follows bookings.

And with our solid bookings growth over the past several quarters, we expect our total revenue growth to increase throughout the remainder of 2021 and beyond as we continue to execute on our growth plan. We have two large growth opportunities in front of us with Dice.

Dice commercial accounts is our largest white space opportunity with tens of thousands of companies in the United States looking to hire high-quality tech professionals.

The staffing and recruiting market opportunity for Dice also remain significant as there are over 18,000 staffing and recruiting firms in the United States alone, and today, we service approximately 4,000 of them.

We continue to focus our marketing spend on generating more qualified leads to fuel our new business team’s growth, both for commercial and staffing accounts, and we’ve seen good results from this investment over the past several quarters.

We handily beat our targets for marketing qualified leads delivered to our new business teams during the quarter, which significantly advanced our new business bookings. As a result, our Dice customer base has grown sequentially for the second conservative – consecutive quarter.

The new client branding campaign we initiated in the first quarter for Dice with the tagline, where tech connects, has driven significant increases in client traffic to our sites and has had a very positive impact on driving more marketing qualified leads. It has been several years since we’ve actively marketed the Dice brand.

And with the launch of Dice marketplace, we are excited to make sure everyone knows about it. We are in the midst of rolling out a new Dice technologist branding campaign, which we expect will result in driving even more candidate traffic to our sites, thereby increasing the value of our marketplace. Now I’d like to turn my attention to ClearanceJobs.

CJ’s second quarter revenue grew 15% year-over-year, and their sales team performed well during the quarter with bookings growth of 17% over the prior year. The revenue renewal rate for CJ remains very healthy at 97%. The strong bookings we saw in the second quarter gives us confidence in CJ’s continued revenue growth.

Also, we continue to work hard on expanding CJ’s addressable market by making direct sales to U.S. government agencies. In the second quarter, we signed contracts with the Department of Navy, Lawrence Livermore Labs, and the Federal Bureau of Investigation.

The market opportunity for CJ with government agencies is largely untapped, and we see it as a significant growth opportunity as we move forward.

Speaking of the significant opportunity for growth ahead for both Dice and CJ, this quarter, we added two new sales leaders, and we have added 16 new sales positions so far this year, increasing the team’s strength by approximately 20%.

We have created the industry-leading online marketplaces for matching companies with the highest quality tech professionals, and we believe we can capitalize on the millions of new technologist positions being created over the next several years.

The success we’ve had to date, executing on our business plan gives us confidence in our ability to continue to grow revenue, which we believe will steadily increase each quarter as we move through the remainder of this year. We look forward to sharing our progress throughout the rest of 2021.

And with that, let me turn the call over to Kevin, who will take you through our financials, and then we’ll take any questions you may have.

Kevin?.

Thank you, Art, and good afternoon, everyone. As Art mentioned, we spun off 60% of the eFC business to eFC management on June 30 and retained a 40% equity stake, which is recorded as an asset of $3.6 million on the DHI balance sheet.

As a result of this transaction, for all periods presented, eFC will be shown as discontinued operations and will no longer be consolidated with DHI’s operating results.

Bookings, revenue, and operating expenses, along with deferred revenue and our committed contract backlog that we will be discussing today, include the continuing operations of the business, which are the Dice and ClearanceJobs brands.

Lastly, the assets and liabilities of eFC for prior periods will be shown as separate line items on the balance sheet. With that summary, let me move into the financial results. For the second quarter, we reported total revenue of $28.7 million, which was up 4% year-over-year.

Total bookings for the quarter was $27.9 million, an increase of 23% year-over-year. Dice revenue was $20.6 million in the second quarter, up 8% sequentially and flat year-over-year. Dice bookings were $20.2 million, up 25% year-over-year.

We ended the second quarter with 5,441 Dice recruitment package customers, which is up 5% sequentially and flat year-over-year. Our average monthly revenue per Dice recruitment package customer was effectively flat, both sequentially and year-over-year at $1,124 or $13,488 on an annual basis.

Over 90% of Dice revenue is recurring and comes from annual contracts. Our Dice revenue renewal rate was 89% for the second quarter, up 7 percentage points from 82% last quarter and up 28 percentage points year-over-year.

Our Dice customer count renewal rate was 81%, up 10 percentage points from last quarter and up 23 percentage points when compared to the same period last year. These metrics continue to demonstrate the strength of the tech job market, especially as it relates to our staffing and recruiting business.

ClearanceJobs second quarter revenue was $8.1 million, which was up 7% sequentially and up 15% year-over-year. Bookings for CJ were $7.6 million, up 18% year-over-year. We ended the second quarter with 1,784 CJ recruitment package customers, which is up 2% sequentially and up 8% year-over-year.

Our average monthly revenue per CJ recruitment package customer was up 2% sequentially and up 3% year-over-year to $1,394 or $16,728 on an annual basis. Similar to Dice, over 90% of CJ revenue is recurring and comes from annual contracts.

Our CJ revenue renewal rate was 97% for the second quarter, up 8 percentage points from 89% last quarter and up 4 percentage points year-over-year. Our CJ customer count renewal rate was 84%, up 2 percentage points from last quarter and up 8 percentage points when compared to the same period last year.

These positive metrics demonstrate the value CJ delivers in the recruitment of cleared professionals. Turning to operating expenses. Second quarter operating expenses of $21.6 million was up $100,000 year-over-year.

While we have cost savings in areas such as travel, office, and other G&A, we are continuing to invest in the sales team and are increasing the spend for our third-party marketing programs. The company recorded an income tax benefit from continuing operations for the quarter of $61,000 on a loss from continuing operations before taxes of $273,000.

Our effective tax rate for the quarter of 22% approximates our expected corporate tax rate. The book loss on the sale of the eFC does not have a current tax benefit to the company.

We recorded a loss from continuing operations for the second quarter of $200,000 or approximately breakeven on a per diluted share basis compared to income from continuing operations of $1.2 million or $0.02 per diluted share a year ago.

This quarter’s loss from continuing operations was negatively impacted by $1.1 million, which primarily related to the transfer of the eFC business, loss from the equity security, and discrete tax items. Last year’s income from continuing operations was negatively impacted by $100,000 in severance and related costs.

Adjusted diluted earnings per share for the current quarter was $0.02 compared to $0.03 for the prior year quarter. Net loss for the quarter of $30.2 million was negatively impacted by a loss from discontinued operations of $30 million.

The loss primarily consisted of $28.1 million related to the write-off of the cumulative foreign currency translation of eFC. This was previously included in stockholders’ equity as accumulated other comprehensive loss.

Adjusted EBITDA for the second quarter was $7.1 million, a margin of 25% compared to $6.1 million and a margin of 22% in the second quarter of last year. We generated $12.9 million of operating cash flow in the second quarter compared to $7.1 million in the prior year quarter.

The improvement was driven from both more billings and more timely payments from customers in the current year. From a liquidity perspective, at the end of the quarter, our total debt was $16 million. We had $7.9 million of cash, resulting in net debt of $8.1 million.

Deferred revenue at the end of the quarter was $43.2 million, up 7% from the second quarter of last year. When we add the unbilled portion of our contracts to deferred revenue, our total committed contract backlog at the end of the quarter was $75.1 million, which was up 26% from the end of the second quarter last year.

Short-term contracted backlog, that is, revenue to be recognized over the next 12 months is $64.6 million, an increase of $7.9 million or 14% from the prior year. During the quarter, we repurchased approximately 530,000 shares for $1.8 million, an average price of $3.30 per share.

In June, our Board authorized an additional $12 million for stock repurchases, increasing the overall share buyback program to $20 million and extending it through June of 2022. $2.2 million has been used to date, leaving $17.8 million available under the program.

We continue to believe the buyback is a recognition of the long-term prospects of our business and the undervalued price of our stock.

Consistent with our previous programs, we will continue to evaluate investment opportunities in the business against buying back shares while also using the buyback program as an opportunity to offset the impacts of our employee equity incentive program.

Looking forward, with the strong bookings performance over the past three quarters, we expect year-over-year total revenue growth to increase throughout the remainder of 2021.

For Dice, we are seeing strength, both in our staffing and recruiting business and with our commercial accounts as customers realize the value of our platform in meeting their hiring needs.

With regard to ClearanceJobs, the strong bookings performance CJ had in the second quarter, along with the opportunity we see in the direct government agency market gives us confidence that its revenue growth will be consistent with previous periods.

From a profitability perspective, we will continue to operate the business to adjusted EBITDA margins at or near 20% as we balance our delivery of strong financial performance with sales and marketing investment.

We are excited by the positive momentum we’re seeing in bookings and believe our continued investments in product innovation, marketing and our sales team will continue to drive sustainable long-term revenue growth. And with that, let me turn the call back to Art..

Thank you, Kevin. I invite you all to join us on Wednesday, September 8 for DHI’s 2021 Virtual Investor Day. We’ll issue a press release shortly with details on how to attend this two-hour event. I’d like to close by once again thanking all our employees for their hard work over the past several quarters.

Your determination and dedication to executing our growth plan is unmatched. It is a pleasure to be part of such a great team. With that, we’re happy to take your questions..

We’ll now begin the question-and-answer session. [Operator Instructions] The first question comes from Josh Vogel of Sidoti. Please go ahead..

Thank you. Good afternoon, Art and Kevin..

Hey Josh..

It’s certainly nice to see the strong performance ahead of schedule there. So a couple of questions.

I wanted to start without the – I don’t want to call it a distraction but without eFC around, does that change your go-to-market strategy at all? And could you also talk about how this move frees up resources to focus entirely on enhancements and rollouts to Dice and just internal resources in general, and should it ultimately lead to some leverage and operating efficiencies?.

So I think it’s exactly as you described. Without eFC and the complexity of eFC, recognizing that it operates across 18 different countries in four different languages and multiple sales teams, I think we have the ability to be much more focused in our approach for territory management inside of the United States across Dice and ClearanceJobs.

I do believe that now we can take the full leverage of our engineering and product teams and bring them to bear just for Dice and CJ alone. So that was part of the strategy, quite frankly.

And as I’ve explained in past conference calls, we do believe that the financial sector is going to be under duress at least in the UK and Hong Kong, the two major markets that are eFC’s territories for quite some time to come. So we think that all in all, we made the right decision to make the separation effective on the June 13.

And now we do have that real focus on technology as a sector, the United States as a geography and making sure that we really get to product excellence for both Dice and CJ..

I appreciate those insights. Thank you. You mentioned hiring, I think it was 16 or 18 total in the sales efforts year-to-date, I was just curious about expectations in the back half of the year.

And then maybe when we think about internal investments going forward whether they’re targeted headcount additions, more on the marketing side, I’m curious – well, two-part. I apologize.

One, of the sales reps that you hired year-to-date, how are they performing relative to expectations? It sounds pretty good, but I just wanted to hear more thoughts on that.

And secondly, how should we think about the sales and marketing operating expense line? Should it get back to the quarterly run rate we were seeing in 2019 or would still remain below that?.

So let me cover off the first part of your question, Josh, and then I’ll leave Kevin to answer the question about how to think about sales as an expense. But I can tell you that the sales team members that we’ve brought on board are definitely meeting and exceeding expectations.

Generally speaking, for a quota-bearing sales rep, the ramp time is nine months. So they are not expected to get to full quota attainment until that ninth month, but everybody is doing marvelously well. And so when I think about the remainder of the year, we’re actually continuing to add sales reps.

We’ve added a number of marketing resources already this year and have a pretty stable marketing team. We’re also looking for a lot of technologists ourselves. And so if you go to the DHI Group Careers page, you’d find that roughly speaking, we’re looking for dozens of people right now largely in technology but continuously in sales as well.

So, Kevin, I’ll let you speak to the sales expense item..

Yes. And thanks for your questions, Josh. So the way we look at the business, our expectation or goal is to be roughly at a 20% adjusted EBITDA margin. And so with that, we think areas like cost of revenue, product, and G&A will remain generally flat or consistent with prior periods.

And so as revenue grows, that’s going to give us an opportunity to continue to invest in sales and marketing, and it will be a combination of both new salespeople and increased third-party marketing spend.

And ultimately, the amount of people we can hire and the spend that we can make in marketing is really driven by our desire to be at about that 20% EBITDA margin. So we do expect sales and marketing line to increase and that’s – we kind of manage that number so that our total costs result in EBITDA of roughly 20%..

Understood. I appreciate that. And is that – 20% goal, is that a 2021 target because then once we do see the revenue starting to flow through and there’s inherently more leverage in the model – understanding that you’re offset somewhat by internal investments.

But can that adjusted EBITDA margin get back to pre-pandemic levels? Is that something that we should be expecting next year and certainly beyond?.

Yes. Yes. And I would say, from our perspective, it’s towards the end of next year and then beyond. Our goal right now is to make our investments in sales and marketing to drive that top – to drive bookings, which manifest itself in top line revenue growth kind of call it, three to six months out, so one, two quarters out.

And so our business model clearly has operating margin. And so we would expect EBITDA expansion to occur 12, 18 months, and beyond. But at least in the near-term, we’re really focused on making those investments. But clearly, we’ve got the ability to achieve margins that other HCM and other SaaS companies have in the marketplace..

All right. Great. Thank you for that. Shifting gears a little bit, really impressive bookings performance. I’m just curious when we were looking at last year, I know you made changes with customers and prospects to offering monthly or quarterly type of contracts.

I’m just curious about the breakdown we saw in Q2 and mostly annual, are they short-term, are you seeing more multi-year come in? I’m just curious about that mix..

Yes, Josh, we definitely are seeing more multi-year contracts and that’s what you see when you look at our total contracted backlog being up significantly whereas our short-term backlog is up a smaller percentage. So you have that 26% versus the 14%. That difference is really those multi-year contracts that we’ve been signing over the past year or so.

So we are definitely getting traction in those multi-year contracts..

And I would add that your question about the payment terms remains stable. Roughly about 70% of our contracts are signed such that they are paid upfront within net 30 terms..

All right. Great. And just lastly, and I’ll hop back in the queue. Just any comments around booking trends through the first five weeks of the quarter relative to how you said it was build month – it was building month-to-month through Q2, so I’m curious how the first 5 weeks are looking? Thank you..

Still very strong across all of our teams. And obviously, as we should be, we’re concerned about the Delta variant but we’re not seeing any kind of response by our customers that would indicate that they are slowing their hiring based on what’s happening right now. So all is good for right now for the first five weeks..

Sounds great. Well, thank you, guys for taking my questions..

Thank you, Josh..

The next question comes from Zach Cummins of B. Riley FBR. Please go ahead..

Great. Hi, good afternoon. Thanks for taking my questions. And congrats on really strong results. Yes, Josh really asked a lot of the questions that I really wanted to touch on.

But I mean, in terms of the renewal rates on the revenue side for Dice, can you just talk about some of the aspects that drove the nice jump up we saw here sequentially, and is this something that you think can be a sustainable level in terms of revenue retention for Dice moving forward?.

Yes. I’ll speak to both those points, and then I’ll ask Kevin to add along his comments. I would say that what we’re seeing is there’s obviously a very high demand for hiring right now, and I think it’s a pent-up demand associated with suppression in 2020.

But I would tell you, we also see the additive effect of putting in auto renewal language in our contracts as a standard back in May of 2020. So that auto renewal language comes with an escalator provision. And that’s helping us as well as a tailwind.

But it’s both, I would say, the environment as well as the fact that the auto renewal language now gives us a lot of leverage in our discussions with clients..

Yes. And the only thing I would add on that, Zach, is we also have been continuing to improve our account management team by way of things like instituting quarterly business reviews. At one point it was the top 100 customers, now it’s the top 200, and it continues to expand. So our touch points with our customers are becoming more frequent.

And we’re – it’s not only touchpoints, but it’s also making sure that all of the new features that we develop they know how to use those, they’re aware of them, they’re using our tool.

So we’ve restructured that account management group probably about a year ago where we changed the way they interact with our customer, and we’ve seen some really positive benefits through that as well..

Understood. That’s helpful. And just final question for me.

I mean, can you give us a little more insight into the product roadmap for both Dice and ClearanceJobs as we go forward from here?.

Absolutely. So with Dice, I would say that we are continuously deepening what we consider to be the marketplace core features, meaning talent search as the most important value proposition inside of our site.

It’s our matching technologies, the ability to essentially put in a full job posting and have the best possible matches against the candidates in our database, but also other parts of the experience associated with the recruiter and the individual candidate profiles. This next quarter, we’re spending a lot of time with ATS integrations.

So we’re going to be able to announce several partnerships that we have with ATS’ where there’s a deeper integration with the Dice database. And then with ClearanceJobs, ClearanceJobs legitimately in my opinion is about three years ahead of the rest of the market including Dice.

And they continue to focus on, I would say, video enablement as a core kind of stepping stone to the future and a stepping stone to attract the right kind of candidates.

So we are going to see a lot more video content creation inside of the CJ platform because that’s what the world is used to these days, and that’s especially important for certain age cohorts that we want to attract. So I think that those are the top-level ways that I would describe our product road map for both Dice and CJ.

But it’s a very exciting time and I’d tell you that Dice is continuously following the successes that we see in CJ. So CJ still essentially is our testbed for innovation. Very excited about all the different progress that they’ve made over the last 18 months to 24 months..

Understood. That’s great to hear. Well, thanks again for taking my questions. And congrats again on a strong quarter..

Thank you..

Thank you so much. Appreciate that..

This concludes our question-and-answer session. I would like to turn the conference back over to Art Zeile for any closing remarks..

Thank you very much, everyone, for your interest in DHI Group, and thanks for joining our call today. Have yourself a wonderful remainder of the week..

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect..