Improved Bookings Yield Solid Q4 Results and Outlook for FY '24

DHI Group (DHX) reported Q4 ’23 results ahead of our estimates and consensus. While the selling environment continues to present challenges, new customer bookings at both Dice and ClearanceJobs rebounded from the depressed levels seen in Q3. For Dice, the introduction of new pricing bundles produced an uplift in the annual contract value of deals transacted in the quarter, and bookings declined less than we feared. At ClearanceJobs, bookings growth reaccelerated into the mid-teens due in part to the passage of the 2024 National Defense Authorization Act in mid-December. The improved bookings performance translated into a modest revenue beat, which combined with lower levels of marketing spend yielded upside on both the adjusted EBITDA and EPS lines.

Thus far in FY ’24, the improved cadence of new bookings and renewals in Q4 appears to have carried over, and management is cautiously optimistic that total bookings growth will return to positive levels in the latter half of the year. Reflecting the bookings trajectory of late, however, management’s guidance for FY ’24 calls for a low single digit decrease in revenue and an adjusted EBITDA margin of 24%. We note that the guidance compares favorably with our prior estimates and consensus, which generally reflected a mid-single digit decline in revenue and an adjusted EBITDA margin of 23%-24%.

In our view, the stronger sales performance in Q4 is encouraging and bodes well for the new year. More specifically, we believe management’s shift towards selling bundled offerings provides significant opportunities for growth with both new and existing customers and is likely to translate into higher retention rates over the long term. In addition, we believe management’s willingness to explore alternative customer engagement models like programmatic recruiting further expands the company’s addressable market opportunity and offers new vectors for growth. With all this in mind, we raise our estimates for this year and next, primarily reflecting an increase in our assumptions for new business partially offset by a modestly higher forecast for operating expenses. We continue to anticipate that DHI Group will return to positive bookings and revenue growth in Q4 and see accelerating growth and margin expansion in FY ‘25. Given the uptick in our estimates, we raise our price target from $6.75 to $7.00 based on an unchanged FY ’24 EV/Sales multiple of 2.5x.

Exhibit I: Reported Results and Guidance Versus Expectations

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

Q4 revenue of $37.3 million (-6.2% Y/Y) was ahead of our $35.9 million estimate and the Street’s $35.8 million. Revenue from both Dice and ClearanceJobs outpaced our expectations, coming in at $24.6 million (-12.5% Y/Y) and $12.7 million (+9.1% Y/Y), respectively, versus our estimates of $23.6 million and $12.4 million. The upside in revenue across both platforms was attributable to a greater rebound in new business bookings than we assumed.

Dice bookings totaled $22.2 million (-13.6% Y/Y), easily exceeding our projection of $19.8 million. Although Dice continues to experience some churn in its customer cohort spending less than $10,000 annually, new business bookings improved markedly from Q3 levels. In particular, the introduction of pricing bundles that include unlimited job postings and corporate branding pages has been well received by customers and has yielded average annual contract values meaningfully above historical levels.

ClearanceJobs bookings of $13.9 million (+15.1% Y/Y) also surpassed our $12.4 million projection even as the potential for a government shutdown continues to cause some delays in sales cycles. Per management, the passage of the 2024 National Defense Authorization Act in mid-December served as a catalyst for sales.

As for other key customer metrics, revenue renewal rates were generally consistent with our expectations for both Dice and ClearanceJobs, while lower customer counts were more than offset by higher average revenue per customer.

Exhibit II: Key Metrics

Sources: DHI Group; K. Liu & Company LLC

Gross margin of 86.7% was slightly above our assumption of 86.2% due to the upside in revenue, while total operating expenses were in line with our estimate as lower sales and marketing expenses were offset by higher expenses elsewhere. Worth noting, technologists are increasingly creating profiles on Dice and ClearanceJobs unprompted amid the soft job market, enabling management to reduce or reallocate marketing spend that would otherwise be used to grow the candidate pool. Adjusted EBITDA of $10.1 million (27.0% margin) exceeded our estimate of $9.0 million and consensus of $8.9 million. EPS of $0.05 also beat our estimate of $0.03.

Cash at the end of Q4 totaled $4.2 million, while debt outstanding declined from $40.0 million to $38.0 million. In Q4, DHI Group generated $7.6 million in cash flow from operations and used $5.3 million for capital expenditures.

Management’s initial guidance for FY ’24 calls for a low single digit decline in revenue along with an adjusted EBITDA margin of 24%, implying revenue and adjusted EBITDA of $147.3-$150.4 million and $35.4-$36.1 million, respectively. The outlook for the year compares favorably to our estimates and consensus heading into the print. Prior to revisions, we were projecting revenue and adjusted EBITDA of $141.0 million and $33.0 million, respectively, while consensus stood at $142.7 million and $34.4 million.

Exhibit III: Estimate Revisions

Source: K. Liu & Company LLC

We raise our estimates for this year and next to reflect an uptick in our assumptions for bookings growth. While we continue to believe bookings growth will remain under pressure in the near-term, we now expect sequential improvement in the rate of decline throughout FY ’24 with DHI Group reaching an inflection point in growth by Q4. That in turn should set the stage for accelerating top line growth and renewed margin expansion in FY ’25.

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.