DHI(US:DHX)2020-11-04 21:20markdown [PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides the unaudited financial statements and management's discussion and analysis of DHI Group, Inc.'s financial condition [Unaudited Financial Statements](index=2&type=section&id=Item%201.%20Unaudited%20Financial%20Statements) DHI Group, Inc.'s unaudited financial statements highlight a Q3 2020 net loss of $27.3 million, primarily due to $31.6 million in impairment charges Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $26,805 | $5,381 | | Goodwill | $131,132 | $156,059 | | Acquired intangible assets | $23,800 | $39,000 | | **Total Assets** | **$253,145** | **$278,321** | | **Liabilities & Equity** | | | | Deferred revenue (Current) | $41,410 | $50,568 | | Long-term debt, net | $36,546 | $9,435 | | **Total Liabilities** | **$128,028** | **$117,126** | | **Total Stockholders' Equity** | **$125,117** | **$161,195** | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $33,250 | $37,176 | $103,667 | $111,655 | | Impairment of intangible assets | $8,000 | $0 | $15,200 | $0 | | Impairment of goodwill | $23,626 | $0 | $23,626 | $0 | | Operating income (loss) | $(28,578) | $5,273 | $(31,375) | $12,630 | | Net income (loss) | $(27,322) | $4,381 | $(32,010) | $9,030 | | Diluted earnings (loss) per share | $(0.57) | $0.08 | $(0.66) | $0.18 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash from operating activities | $14,444 | $18,988 | | Net cash used in investing activities | $(12,336) | $(7,662) | | Net cash from (used in) financing activities | $19,328 | $(13,128) | | **Net change in cash** | **$21,424** | **$(2,018)** | | **Cash at end of period** | **$26,805** | **$4,454** | Notes to Condensed Consolidated Financial Statements - The company adopted new accounting standards ASU 2018-13 (Fair Value Measurements) and ASU 2018-15 (Cloud Computing) on January 1, 2020, with no material impact on its financial statements[29](index=29&type=chunk)[30](index=30&type=chunk) - Due to the impacts of the COVID-19 pandemic, the company recorded significant impairment charges: **$2.0 million** for an equity investment, **$15.2 million** for the Dice brand intangible asset, and **$23.6 million** for goodwill[46](index=46&type=chunk)[57](index=57&type=chunk)[61](index=61&type=chunk) - The company increased its borrowings under its revolving credit facility to **$37.0 million** as of September 30, 2020, up from **$10.0 million** at the end of 2019[69](index=69&type=chunk) - The company's single reportable segment is 'Tech-focused,' which includes Dice, ClearanceJobs, and eFinancialCareers. Approximately **17%** of revenue for the nine months ended September 30, 2020, came from outside the United States[92](index=92&type=chunk)[95](index=95&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a 7% revenue decline for the first nine months of 2020, driven by COVID-19 impacts and $38.8 million in impairment charges, while maintaining liquidity Our Revenues and Expenses - The number of Dice recruitment package customers in the U.S. decreased from approximately **6,100** at September 30, 2019, to **5,300** at September 30, 2020, reflecting the negative impacts of the COVID-19 pandemic[108](index=108&type=chunk) Backlog (in thousands) | Date | Deferred Revenue | Contractual commitments not invoiced | Total Backlog | | :--- | :--- | :--- | :--- | | Sep 30, 2020 | $41,918 | $22,655 | $64,573 | | Dec 31, 2019 | $51,626 | $37,093 | $88,719 | | Sep 30, 2019 | $51,097 | $22,664 | $73,761 | - Backlog declined by **$24.1 million** from year-end 2019, attributed to COVID-19 impacts, lower renewal rates at Dice, and geopolitical uncertainty affecting eFinancialCareers[110](index=110&type=chunk) Results of Operations Revenue by Brand - Three Months Ended Sep 30 (in thousands) | Brand | 2020 | 2019 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Dice | $19,823 | $22,915 | $(3,092) | (13)% | | ClearanceJobs | $7,326 | $6,320 | $1,006 | 16% | | eFinancialCareers | $6,101 | $7,941 | $(1,840) | (23)% | | **Total** | **$33,250** | **$37,176** | **$(3,926)** | **(11)%** | Revenue by Brand - Nine Months Ended Sep 30 (in thousands) | Brand | 2020 | 2019 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Dice | $62,797 | $69,276 | $(6,479) | (9)% | | ClearanceJobs | $21,333 | $18,116 | $3,217 | 18% | | eFinancialCareers | $19,537 | $24,263 | $(4,726) | (19)% | | **Total** | **$103,667** | **$111,655** | **$(7,988)** | **(7)%** | - For the nine months ended Sep 30, 2020, the company recorded non-cash impairment charges of **$15.2 million** on intangible assets and **$23.6 million** on goodwill, primarily due to the impacts of the COVID-19 pandemic[145](index=145&type=chunk)[147](index=147&type=chunk) - Operating loss for the nine months ended Sep 30, 2020 was **$31.4 million**, a significant decrease from an operating income of **$12.6 million** in the prior-year period, mainly due to the **$38.8 million** in total impairment charges[149](index=149&type=chunk) Liquidity and Capital Resources Reconciliation of Net Income (loss) to Adjusted EBITDA (in thousands) | Line Item | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net income (loss) | $(32,010) | $9,030 | | Add: Impairment of intangible assets | $15,200 | $0 | | Add: Impairment of goodwill | $23,626 | $0 | | Add: Impairment of equity investment | $2,002 | $0 | | **Adjusted EBITDA** | **$22,886** | **$26,305** | - Adjusted EBITDA decreased to **$22.9 million** for the nine months ended Sep 30, 2020, from **$26.3 million** in the same period of 2019. Adjusted EBITDA Margin fell from **24%** to **22%**[165](index=165&type=chunk) - Net cash from operating activities decreased to **$14.4 million** in the first nine months of 2020 from **$19.0 million** in 2019, primarily due to lower billings resulting from the COVID-19 pandemic[170](index=170&type=chunk) - The company had **$26.8 million** in cash and **$53.0 million** in borrowing capacity under its credit facility as of September 30, 2020[168](index=168&type=chunk)[169](index=169&type=chunk) Impact of COVID-19 on our Business - The COVID-19 pandemic has slowed recruitment activity, which has reduced the company's revenues and operating cash flows in 2020[184](index=184&type=chunk) - The ultimate impact of the pandemic on future financial performance remains uncertain and will depend on future developments, including the duration and severity of the pandemic and the pace of economic recovery[185](index=185&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company identifies foreign currency and interest rate fluctuations as primary market risks, including unhedged GBP/USD exposure and variable-rate debt - For Q3 2020, approximately 17% of revenues were earned outside the U.S. A hypothetical **1%** adverse change in the GBP/USD exchange rate would have decreased nine-month 2020 revenues and expenses by about **$0.1 million** each[191](index=191&type=chunk) - As of September 30, 2020, the company had **$37.0 million** in outstanding variable-rate debt. A hypothetical **1%** increase in interest rates would increase annual interest expense by less than **$0.1 million**[194](index=194&type=chunk) - The company acknowledges the upcoming cessation of LIBOR reporting at the end of 2021 and is evaluating the impact this will have on its Credit Agreement and financial statements[195](index=195&type=chunk) [Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal financial reporting controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2020[196](index=196&type=chunk)[198](index=198&type=chunk) - There were no material changes in the company's internal control over financial reporting during the third quarter of 2020[199](index=199&type=chunk) [PART II. OTHER INFORMATION](index=39&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, and other required disclosures [Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in material pending legal proceedings, following the settlement of a prior FCRA class action lawsuit - The company is not currently a party to any material pending legal proceedings[201](index=201&type=chunk) - A class action lawsuit regarding the Fair Credit Reporting Act (FCRA) was settled, and final judgment approving the settlement was entered on July 24, 2020[72](index=72&type=chunk) [Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) Risk factors highlight the adverse and uncertain future impact of the COVID-19 pandemic on revenues and operating cash flows - The COVID-19 pandemic has adversely affected the company's results by slowing recruitment activity, which has reduced revenues and operating cash flows[202](index=202&type=chunk) - Future financial impact is uncertain and depends on the duration and severity of the pandemic, government and business responses, and the pace of economic recovery[202](index=202&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's Q3 2020 stock repurchase activity, with 349,273 shares bought for $0.85 million, leaving $3.6 million available Stock Repurchase Activity - Q3 2020 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2020 | 182,023 | $2.32 | | August 2020 | 89,220 | $2.65 | | September 2020 | 78,030 | $2.51 | | **Total Q3 2020** | **349,273** | **$2.45** | - As of September 30, 2020, approximately **$3.6 million** remained available for purchase under the current **$5 million** stock repurchase plan, which runs from May 2020 to May 2021[204](index=204&type=chunk)[206](index=206&type=chunk) [Other Information](index=43&type=section&id=Item%205.%20Other%20Information) The company reported no other information for this item during the period - None [Exhibits](index=44&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the 10-Q report, including CEO/CFO certifications and XBRL data files - The exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906[210](index=210&type=chunk) - XBRL data files (Instance Document, Schema, Calculation, Definition, Label, and Presentation Linkbase) are also included as exhibits[210](index=210&type=chunk)