Q4 '22 Earnings Preview
DHI Group, Inc. (DHX) reports Q4 ’22 results on Tuesday, February 7. We expect another strong quarter with results at or above Street expectations. Recall that at its virtual investor day in September 2022, management expressed confidence in sustaining both top line growth and an adjusted EBITDA margin near 20% in FY ‘23, thereby remaining a “Rule of 40” company. Despite ongoing macro uncertainty and negative employment headlines across the technology industry, we believe this outlook remains intact. We therefore anticipate formal FY ’23 guidance consistent with both the Street’s and our expectations for revenue growth in the mid-teens to 20% range and an adjusted EBITDA margin at or above 20%. Lastly, we note that DHI Group’s buyback authorization expires this month. Considering the company’s strong performance throughout the past year and a rather muted response by the market, we see potential for a more aggressive approach to share repurchases. Our price target remains $10.50 based on a FY ’23 EV/Sales multiple of 3x.
Exhibit I: Our Estimates Versus Consensus
Sources: K. Liu & Company LLC; FactSet Estimates
Our Q4 estimates call for revenues of $39.0 million (+16% Y/Y), including $28.0 million (+15% Y/Y) from Dice and $11.0 million (+17% Y/Y) from ClearanceJobs, and adjusted EBITDA of $7.3 million (19% margin). Management’s guidance calls for revenues of $38.5-$39.5 million and an adjusted EBITDA margin of approximately 20%. We project total bookings growth of 18% Y/Y, reflecting Dice and ClearanceJobs bookings of $30.6 million (+18% Y/Y) and $12.0 million (+17% Y/Y), respectively. As for guidance, we expect management’s initial FY ’23 outlook to encompass both our estimates and consensus, which assume revenue growth in the mid-teens and an adjusted EBITDA margin in the low-20% range.
Although macro conditions have become increasingly uncertain in recent months, the labor market has remained relatively resilient. According to the U.S. Bureau of Labor Statistics, both job openings and quits remain elevated despite some softening in both metrics over the course of 2H ‘22. As the average number of job openings and quits during Q4 was largely unchanged from the prior quarter, we believe DHI Group continues to operate under favorable market conditions. Finally, we highlight the following quote from Robert Half’s (RHI) Q4 ’22 earnings call, suggesting the market for technology talent remains strong:
“Tech is interesting. Tech is interesting. On one hand, you've got big tech that over-hired, that with great fanfare is announcing all their layoffs. And while we're not directly impacted much by big tech, I'd say there's a psychological and a sentiment impact to all tech and that there's a perception that there are a lot of tech people on the market, that the tech market has loosened a lot. The reality is a lot of those layoffs aren't even tech people. They're recruiters, HR, back-office people at tech companies. Further those that are getting laid off, typically are finding new positions fairly quickly. And so, we would say that the tech market, in fact, is stronger than the perception that's being led by big tech, which has very specific, in many cases, company-specific circumstances.” – M. Keith Waddell, Vice Chairman, President & CEO
In a similar vein, ManpowerGroup (MAN) also indicated during their recent earnings call that there is a divergence between areas of its business that are feeling the impact from economic uncertainty such as its Manpower brand, which is exposed to verticals like construction and industrial, and those holding up well like its Experis brand, which has 90% of its revenue tied to IT skills. We expect DHI Group’s management to express similar sentiments regarding the demand for technology talent during its upcoming earnings call.
Exhibit II: U.S. Job Openings in Thousands
Source: U.S. Bureau of Labor Statistics Job Openings and Labor Turnover Survey
Exhibit III: U.S. Quits in Thousands
Source: U.S. Bureau of Labor Statistics Job Openings and Labor Turnover Survey
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.