June 17, 2019 - 1:18pm EST by
2019 2020
Price: 4.00 EPS 0.38 0.49
Shares Out. (in M): 50 P/E 10.5 8.2
Market Cap (in $M): 198 P/FCF 8 7
Net Debt (in $M): 9 EBIT 27 33
TEV (in $M): 209 TEV/EBIT 7.7 6.4

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DHI Group (DHX) is the parent company of three Internet job sites, Dice, ClearanceJobs, and eFinancialCareers.  Each site focuses on a different type of job candidate.  Dice is focused on technology and engineering jobs, eFinancialCareers is focused on jobs in the financial services sector, and ClearanceJobs is focused on jobs for security-cleared professionals.

DHI is a turnaround story under new management.  Art Zeile joined the company as CEO in April 2018.   Art has 22 years of experience leading online companies, including Hosting.com, Inflow Inc., and LINK-VTC, which he founded and later sold to Global Crossing.   Art has also been successful academically, graduating with a Bachelor’s degree in Astronautical Engineering from the US Air Force Academy and a Master’s degree in Public Policy from the JFK School of Government, Harvard University.    


Upon joining DHI, Arts began to upgrade his management team.  He added Paul Farnsworth as Chief Technology Officer in February 2019.  Paul has experience at the Reed Group, Level 3 Communications, and Qwest Communications.  Art added Michelle Marian as Chief Marketing Officer in October 2018.  Michelle spent 12 years as Senior Vice President of Interactive Platforms at Webroot Software, as well as a stint as Vice President of Interactive Marketing at Safeway.  Art added Chris Dwyer as Chief Product Officer in September 2018.  Previously Chris had been Executive Vice President of Product Management at Healthgrades Operating Company and before that he had been Vice President and General Manager at AOL/MapQuest.


Finally, Art added Chris Henderson as Chief Strategy Officer in April 2019.  Chris served as Managing Director and a Member of the Firm’s Investment Committee at Vestar Capital Partners for 13 years.  Previously he had served on the Mergers and Acquisitions Group at Credit Suisse First Boston.  Chris also served as a Senior Advisor to Secretary of the Interior Ken Salazar where he led the department’s successful execution of its $3 billion Recovery Act program.  Chris has an M.B.A. from Columbia Business School and a B.A. Summa Cum Laude and Phi Beta Kappa from the University of Colorado at Boulder.       


DHI under previous management had been a roll-up of various unconnected job sites and most of the sites were neglected by a lack of operational focus.  Zeile decided to sell or spin-off all of the job sites except the three listed above.  2018 was a transition year for the company as it sold off BioSpace, Hospitality Careers Online, and Rigzone and shut down Dice Europe.  The remaining businesses are doing about $150 million in revenue and are highly profitable, generating $32 million in EBITDA in 2018, for a 21% EBITDA margin.


The market for online recruiting is large and growing.  Online recruitment sites in 2018 generated $7.7 billion in revenue and $880 million in profit.  Annual growth in this market between 2018 and 2023 is expected to be 7.3%.  Of this total, IT talent generates about 9% of online recruiting revenue in the US, but is growing faster than other sectors.  LinkedIn is the biggest competitor in the space but DHI competes well with its niche-focused sites.


Dice – Dice has been a popular job site for technology and engineering talent for the past 28 years.  The job postings on Dice, from both technology and non-technology companies, include positions for software engineers, big data professionals, system administrators, database specialists, project managers, and a variety of other technology and engineering professionals.  Dice currently has over 20% of the Fortune 1000 as customers.  


In terms of scale, Dice had approximately 78,000 job postings, 2 million monthly users, and managed over 7 million US profiles at the end of last year.  Dice generated $23.1 million in Q1 2019 (62% of total sales), down 1% year-over-year which was an improvement from its prior rate of decline of 10% in previous years.  This is a result of a few initiatives that the company put in place in 2018, including: 



     1.       Migrating 99% of Dice customers to TalentSearch with IntelliSearch, generating positive feedback and a double-digit increase in usage.


2.       Launched Candidate Match, which uses DHI’s AI-based technology skills data model to grade each candidate’s skills, experience and relevance against the requirements of a job posting.

3.       Introduced performance-based products alongside DHI’s current user-based model.  This enhancement enables clients to pay on a consumption basis.

DHI believes that tech recruiting is all about the unique skills required by a position and the candidate profile.  The company has spent 7 years creating a data model that captures the relationships between 100,000 tech skills.   Machine learning allows DHX to constantly improve its skill search capabilities with IntelliSearch.


eFinancialCareers – This site is one of the world’s leading financial services careers websites, operating in multiple markets in four languages, mainly across the UK, Continental Europe, Asia, Australia, the Middle East, and North America.  Professionals from across many sectors of the financial services industry, including asset management, risk management, investment banking, and information technology, use eFinancialCareers to advance their careers.  This site had approximately 15,000 job posting as of the end of 2018 and on average 2.2 million monthly users.  The site generated $8.2 million in sales in Q1, representing 22% of total revenue.  The site currently counts 57% of the Global 100 Banks as customers.


Like Dice, DHI management is attempting to model eFiniancialCareers after the successful ClearanceJobs.  The site recently released Job Search, which is an improved capability to assist candidates in finding jobs that are more relevant to their resume and background.  Like Dice, the site is trialing performance-based products (currently in the pilot phase), which are being offered alongside the company’s current user-based model.  Beside product innovation, the site has an opportunity with Asia Pacific Tier 2 Banks where they currently have little penetration. 


ClearanceJobs – this site is a leading Internet-based career network dedicated to matching security-cleared professionals with the best hiring companies searching for employees.  Authorized U.S. government contractors, federal agencies, national laboratories, and universities utilize The Cleared Network to quickly and easily find candidates with specific, active security requirements to fill open jobs in a range of disciplines.  The majority of the candidates have high-level security clearance.  The site had about 48,000 job postings as of the end of 2018 and about 556,000 monthly users during the year.  It also managed over 1 million profiles at year end.  The site generated $5.8 million in revenue in Q1, representing 16% of total sales.  ClearanceJobs has been growing 20% year-on-year for the past two years and is the model for current management attempts to improve performance of their other job sites.     


The gist of management’s plan is to improve the look and functionality of Dice and eFinancialCareers to get them on par with ClearanceJobs which has been functioning well over time.  This will be accomplished by drastically shortening time to implement new features on the sites.  New management is already making solid progress with this as can be shown by the recent features listed above.  While doing so management plans to also keep a tight rein on expenses so incremental revenue can drop to the bottom line    


Financially, DHI is currently in very good shape.  The company is generating $150 million in revenue with 21% EBITDA margins.  If it can get its sites to grow there is a ton of operating leverage in the business as much of the company’s costs are fixed (operating the websites, R&D, G&A).  Then margins can improve rapidly in that scenario.  So what is the endgame for this company?  It could stay independent and grow ending up with $200 million in revenue and 30%+ EBITDA margins in time.  Or it could get acquired by a LinkedIn or some other larger independent job site.  Given the profile of the company’s new Chief Strategy Officer, an acquisition of the company does not seem out of the question.


In terms of a price target, if the company starts growing at a mid-single digit pace then I think it deserves a relatively conservative 8x EBITDA multiple on 2020E EBITDA of $41 million resulting in a $6.80 stock price or a 70% return from current levels.


Risks – As in any turnaround story, there is both strategic and operational risk to the turnaround itself.  Management can either screw up the overall plan or even if the plan is good, it can screw up the implementation.  That is why management is critically important in any turnaround.  I believe we have a solid team in place here which is why we are involved with the name but I have been wrong before so only time will tell.       

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


Accelerating revenue growth leading to rapid margin expansion will drive shares.  A takeout is a possibility as well.

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