Mike Durney - President and CEO Constance Melrose - VP, Corporate Development Brendan Metrano - VP, IR

Kip Paulson - Cantor Fitzgerald Randy Reece - Avondale Partners

Good morning, and welcome to DHI Group Third Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Brendan Metrano. Mr. Metrano, please go ahead.

Thanks, Keith, and good morning, everyone. With me on the call today is Mike Durney, President and Chief Executive Officer of DHI Group Inc.; and Constance Melrose, Vice President of Corporate Development and FP&A. This morning, we issued a press release describing the company's results for the third quarter of 2016. A copy of that release can be reviewed on the company's Web site at dhigroupinc.com. Before I hand the call over to Mike, I'd like to note that today's call includes certain forward-looking statements, particularly statements regarding future financial and operating results of the company and its businesses. These statements are based on management's current expectations or beliefs and are subject to uncertainty and changes in circumstances. Actual results may vary materially from those expressed or implied in the statements herein due to changes in economics, business, competitive, technological and/or regulatory factors. The principal risks that could cause our results to differ materially from our current expectations are detailed in the company's SEC filings, including our annual report on Form 10-K and quarterly report on Form 10-Q in the sections entitled Risk Factors, Forward-looking Statements, and Management's Discussion and Analysis of Financial Conditions and Results of Operations. The company is under no obligation to update any forward-looking statements except where as required by federal securities laws. Today's call also includes certain non-GAAP financial measures, including adjusted EBITDA; adjusted revenues; net income, excluding impairment of goodwill; diluted earnings or loss per share, excluding impairment of goodwill; adjusted EBITDA margin; free cash flow; and net debt. For details on these measures, including why we use them and reconciliations to most comparable GAAP measures, please refer to our earnings release and our Form 8-K that has been furnished to the SEC, both of which are available on our Web site. Now I’ll turn the call over to Mike.

Great. Thanks, Brendan. And before I start, I just want to mention that Brendan joined us in August as the VP of Investor Relations. He’s done a great job so far and we’re happy to have him as part of the team. So welcome to DHI Group’s third quarter earnings call. On today’s call, I’ll spend time discussing the results of our recent strategy review to reinvigorate growth in the company and the company’s decision to explore strategic alternatives. And I’ll also update you on operational items that we discussed last quarter. And then Constance will discuss our financial results for the quarter. And then finally, we’ll open up to questions. I’m pleased to announce that Luc Grégoire has joined DHI as CFO today and is with us on this call. Luc comes to us from Avepoint, a private equity backed enterprise software company and before had senior finance roles at Take-Two Interactive and McGraw Hill. He also worked at a number of other industries and was at Merck earlier in this career. He brings significant experience managing finance organizations notably in SaaS-based businesses. Considering that Luc just joined the company, Constance will give today’s financial update. Constance is our VP of Corporate Development and FP&A and has been with the company more than 15 years, including for a period of time as Head of Investor Relations back in the day. So in the past few years, we’ve talked a lot about the competitive pressures in our industry, as capital and new entrance are continually attracted to the favorable fundamentals of human capital management and specifically talent acquisition. We’ve worked to evolve with the industry to enhance our competitive position investing in technology and data analytics capabilities and launching new services like Open Web, getTalent and FreshUp and the Dice Careers app among others. We recognize the value proposition of relying purely on standalone destinations as the sole or primary avenue for reaching professionals would continue to decline, which is why we launched those new services in the first place. Given some of these challenges, earlier this year the management team conducted a comprehensive strategic review of our business including the engagement of an outside firm to gather independent insight from customers and professionals and to help us access our position with regard to these competitive dynamics. The key takeaway that emerged from the review is that the best opportunity to improve the growth trajectory of our business is by renewing our focus on the tech talent market. The tech market has always been the leader in innovation for talent acquisition and focusing on tech first will help drive that business, and also provide derivative benefits for the other brands. In addition, the review process identified a number of services that could provide new avenues of growth for the company, some of which we have identified and have been addressing already. So let’s start with why tech offers us the best opportunity for growth. Tech is a huge employment vertical, so there’s ample runway for us with millions of tech workers in the U.S. and even more in international markets. Plus a significant amount of turnover or what we refer to as velocity of change. It’s broad based; Walmart, General Motors, JPMorgan don’t initially come to mind when thinking about tech but they all employ many tech professionals. All companies today are tech companies in some form or have tech needs. Tech inherently has better growth prospects than most other occupations due to the rate of innovation, integration of technology and business in more broadly and the constantly evolving mix of skill sets. Tech is skills base, which lends itself to our next-generation products like getTalent and Lengo, our targeted recruitment advertising product. Importantly, we already have a firm footing in tech recruiting and talent information. Dice is roughly half our business and has been well established among tech professionals since the 1990s. Our challenge in tech has been with the rate of change in our industry today. Our tech offering is not as robust nor as deep as it should be, because our finite resources have been spread across seven employments brands. By focusing more of our resources on tech and stepping up and redeploying investments in people, product development and marketing and enhancing our attention to professionals and candidates, we’ll capitalize on growth opportunities in the tech employment vertical. Our strategic review process identified a number of growth opportunities for us in tech talent acquisition including, one, social sourcing where we’ve had success bundling Open Web with Dice but would benefit from moving faster. The combination of access to resumes and profiles through Dice combined with the social sourcing elements of Open Web create an offering that is unique in the market. Going forward, our digital team will focus on building and improving Open Web for tech. This will dramatically accelerate our time to market. Second, the Dice Careers app has generated strong interest from tech professionals and we envision from employers in the future as they set budgets and access compensation for tech positions. We’ll continue to invest to make Dice Careers the best-of-breed career app for tech professionals to drive recurring usage. This is assessments. One of the core challenges in tech recruiting is finding the right hire, assessing skills is a significant gap in the market, the difference between identifying whether a candidate has skills versus whether they are proficient at those skills. We are working to bring a skills assessment service to the market that will fill that gap and move us deeper into the talent acquisition funnel with customers. And fourth, curated recruitment targeting elite tech professionals who’s a high value proposition for tech employers. We will build on what we have done with our managed services or concierge services to bring a curated recruitment platform to market. Lastly, the strategic review confirmed the significant growth opportunity we see for next generation products, our BrightMatter Group has developed, like Open Web, the social sourcing service, getTalent or talent CRM offering and Lengo, which is our employment branding tool which helps employers reach highly targeted candidates at scale through tailored recruitment messages across social channels. These services have demonstrated strong commercial appeal and generated compelling feedback from existing and potential customers. Importantly, we feel we have the building blocks here together with some early momentum in the new products and the competitive landscape today for these products is quite favorable with no dominant players in the market. So when we look out five years, we believe these next generation products should contribute 40 million to 50 million of incremental annual revenue to the company and 20 million to 30 million of incremental EBITDA to our business with the potential to continue growing top line at high-single digit pace for years thereafter. So what does the tech-focused strategy mean for the non-tech brands? It will not significantly impact them as we’ll continue to work on current initiatives and support them as we do today, and they should benefit from a number of initiatives we have already put in place. In some cases, they’ll benefit from this renewed focus on tech. At eFinancialCareers, tech plays an important role in the financial services industry and we’ll benefit from this strategy. Wall Street has long been a pioneer of tech developing tools to gain a competitive advantage and provide market insight. Today, 25% of jobs on EFC are tech jobs, as many financial services companies have morphed into fin tech companies and employ a significant number of tech pros in their operations. At Goldman Sachs, for example, tech professionals now represent nearly one-third of its total workforce. Plus eFinancialCareers strong international business, especially in the UK and APAC, will provide a launch pad for our tech strategy. Moving on to other verticals, at Hcareers, our hospitality vertical, for example, we’re close to releasing a new combined resume and social data offering using the Open Web data that will create a new product for that vertical. And at Health eCareers, we continue to build on new products that we have launched over the past year or so, including Spotlight, SHIFT and our pay-for-qualified-apply [ph] product. To-date, the financial performance for those products has been disappointing but customer interest remains incredibly high. So there are ample opportunities for the various verticals to grow but our primarily focus will be on how we build out and provide more services in the tech vertical. A final thought on our strategy is that is very much focused on the professional. We believe with consolidation in the industry there will be an opening to be the trusted provider of information around careers to professionals. At our regular quarterly Board meeting last month we shared with the Board the results of our strategic review and our proposed new strategic plan focusing on tech first. The Board viewed our process and conclusions positively and agreed that our proposed new strategy made the most sense. We are therefore moving forward with our strategy and we’ll provide updates as we finalize our implementation plans. Also during the Board meeting, discussion arose about the recent deal activity among our publicly traded competitors with Monster and LinkedIn having been sold and CareerBuilder about to be for sale. In light of this activity, the Board indicated it would be appropriate for our company to engage in an investment bank to explore strategic alternatives to ensure the company’s ownership structure, optimize its shareholder value and the company’s growth agenda. We have begun this process and expect to retain a bank in the next few days but there is no certainty that a transaction will occur. We’ll update you through the process when there is new information to share. The management and the Board are excited about our strategy to place a stronger focus on tech and we’ll move that forward regardless of the new ownership prospects. So with that, I’ll move on to an update on our businesses this quarter. We made good progress in a number of key initiatives, despite ongoing challenges in the overall environment and our financial performance versus expectations. At Dice, our transition to a more holistic offering with a suite of products is gaining traction as evidenced by 75% of new business sales in September included a bundle package of resume and profile views. Open Web continues to gain momentum with 1,300 Dice customers also subscribing to Open Web, an increase of 30% from this time last year. Our Dice Careers app had doubled the number of installs from the prior year and a 75% increase in the number of active users. The app is positively impacting Dice’s business accounting for 11% of Dice’s mobile traffic in Q3, up 400 basis points from the 7% in Q3 2015. We’re also working on a number of additional partnerships to increase installs and in-app engagement. The app is just one way we’re further engaging with tech professionals and providing valuable insight for them to manage and excel in their careers. The salary and skill suggestion data puts information at tech pros’ fingertips so they are more informed about their career path and options. We’re also taking a number of steps to improve our execution in Dice business. We’re pleased to announce a new Head of Sales joined Dice in late August who brings significant experience with SaaS-based human capital management businesses. To this end, we’re making strides in transforming of our sales approach to leading with our Open Web capabilities. We continue to make progress in our efforts to integrate Dice with ATF systems customers, which is benefiting our attribution and renewal rates with those customers. Through September, we have completed 575 integrations to-date and we added three new ATF partners in late September bringing the total to 12. The retention rate for customers integrated is over 80% compared to around 70% for all customers, and the revenue renewal rate is significantly higher than it is for all customers. So moving on to BrightMatter, this quarter we sold several key client deals for getTalent demonstrating the product’s customer value proposition. We made several significant product enhancements in Q3 to improve the use experience such as a new mobile app, enhanced email campaign management and integration with Workday. We are particularly excited about the getTalent mobile app, the first of its kind in candidate pipelining offering employers and recruiters real-time candidate management. Early feedback on that has been positive with recruiters telling us they’re excited by the ability to upload resumes with the photo, contact candidates via email or phone from the app and overall reduce downtime as they engage with multiple candidate leads on the go. We intend to build off the success in Q3 with a strong pipeline of sales leads to work from in the upcoming months. In addition to getTalent, BrightMatter is developing a number of new products and services such as Lengo, which we believe are critical for all hiring organizations and recruiters. To-date, we’ve sold Lengo packages to Dice and eFinancialCareers clients across a variety of industries. The value proposition of Lengo is not something which is industry specific but we believe that as we make additional product refinements and enhancements, the need for Lengo will only continue to grow. Turning now quickly to the GIG brands, uncertainty over the long-term fallout from Brexit continues to be a headwind for eFinancialCareers and it’s not clear when that will subside or how it will ultimately play out. But that said, eFinancialCareers remains a solid franchise within UK financial services and provides us another platform to launch new services. For example, eFinancialCareers will be rolling out Lengo in Europe to a subset of the sales team. Moreover, we believe eFinancialCareers has good growth opportunities outside the UK, particularly in APAC. Although in the U.S., eFinancialCareers continues to struggle. While we’ve experienced some performance issues in recent months, I believe our tech first strategy will allow us to better address changing industry dynamics, serve our customers well and position us for growth. And so with that, let me turn it over to Constance.

Thank you, Mike. Thanks everyone for joining the call. Today, I’m going to talk through key points in our third quarter financial performance and provide a fourth quarter outlook before turning the call back to Mike. Note that all comments in today’s review excludes Slashdot Media results in the previous year. Third quarter total company revenue declined 9% year-over-year, 7% on a constant currency basis and 3% excluding FX impact on the results of our energy business. Given the impact of energy’s performance on our results, we continue to provide a view of total revenue excluding energy. Key factors in the quarter include the following. The main driver of a 7% year-over-year decline in Dice U.S. revenue was the 6% decline in recruitment package customers at quarter end from 7,250 from 7,700 a year ago. The monthly average revenue per recruitment package customer for Dice was $1,122 in the current quarter, roughly flat on a sequential basis and up 2% compared to Q3 2015. ClearanceJobs revenue increased 21% year-over-year reflecting continued improvement in market dynamics for our business, product and marketing enhancements and the impact of the pay-per-performance product on customer spend. Revenues declined 6% year-over-year on an actual basis at eFinancialCareers where the impact of currency was felt the most. In contrast, revenue increased 4% year-over-year on a constant currency basis. Revenue at our energy business declined 55% compared to last year and we are seeing no improvement in the global market environment. In the quarter, we estimated and recorded a non-cash impairment charge of 24.6 million due to continued deterioration in the energy businesses’ financial results. This represents the full write-down of goodwill and intangibles for that business. Healthcare segment revenue declined 3% year-over-year reflecting the impact of the termination of three association partnerships on product usage by customers. Total company billings declined 10% year-over-year and 6% excluding the impact of FX in the energy business, which experienced a 49% decline in billings. These trends reflect the ongoing headwinds in our markets which we have encountered through the year. The currency impact again was felt principally at eFinancialCareers where billings declined 10% on an actual basis versus 1% on a constant currency basis. Total expenses were lower than last year’s quarter even as we continued our investment programs as planned both in our talent acquisition brands and our BrightMatter unit. The expense decline was principally due to lower activity in our energy business along with the FX impact. With revenue down from last year, our adjusted EBITDA margin declined to 26.6% from 30.5%. Excluding the impact of estimated impairment charges for the energy business, our effective tax rate was 35.2% resulting in net income of 4.9 million compared to 6.4 million in the prior year, and $0.10 in earnings in per share compared to $0.12 per share a year ago. In the third quarter, we generated 12 million in operating cash flow and 9.1 million of free cash flow compared to 12.4 million and 10.6 million, respectively, in the prior year. At the end of the quarter, we had 92 million in debt leaving 158 million of borrowing capacity available on our credit facility. Deferred revenue was 82.4 million at the end of the third quarter compared to 83.3 million at December 31, 2015 and 81.9 million a year ago with gains at tech and Clearance in both periods offset by declines in our energy business. Turning to guidance, which is on Page 5 of the third quarter press release, for the fourth quarter we expect revenue between 54 million and 55 million; adjusted EBITDA between 13.4 million and 13.8 million, which includes 18.5 million to 19 million of talent acquisition brands adjusted EBITDA; 3.1 million to 3.3 million of corporate costs and negative EBITDA at BrightMatter of 1.9 million to 2 million; and EPS of between $0.09 and $0.10 per share. Looking ahead and consistent with the new strategy Mike outlined earlier, we expect to evolve the metrics we use to measure our progress and the strength of our business. In keeping with our standards on transparency and consistency in reporting, we will continue to report current metrics as long as they are relevant to understanding our business while bringing in new metrics when appropriate. This evolution will take place over a period of time to ensure the proper flow of information. Now, I’d like to turn the call back to Mike to open the call for questions. Thanks.

Okay. Thanks, Constance. So just in summary, we know we have work to do but I think we have the foundation in place to continue to build the business. The management team is excited about having this renewed, refined, refocused strategy on tech first and we think that gives us the underpinnings for growing the business in the future. In summary, I want to thank all our employees around the world who work hard very day to move this business forward and I’m appreciative of their support and help in moving us towards the future. With that, we’ll turn it over to questions.

Yes. Thank you. We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Youssef Squali with Cantor Fitzgerald.

Hi. Good morning. This is Kip Paulson for Youssef. Just a couple from me. First, why such a sudden drop off in Dice revenue and subscribers which continued into the fourth quarter? And when your clients churn or reduce spending, what is typically the top reason or two for doing so? And then secondly, Rigzone at 2.1 million for the quarter is the lowest we’ve seen it and theoretically comps should have already been improving by now. Is there still downward pressure from here and when do you think this line could start growing again? Thank you.

Sure. Can you ask the first question again? I want to make sure I cover the different elements, as you mentioned Q4 and I want to understand the context of the question.

Sure. So just why the sudden drop off in the Dice revenue and subscribers in the quarter, which guidance implies will continue into the fourth quarter? And when your clients do churn or reduce spending, what is typically the top reason or two when they do that? Thanks.

Yes, thanks for clarifying. So I think on the first piece, we’ve seen downward pressure on the Dice business for a while. The net change in customers in Q3 from a reduction standpoint was actually the lowest it’s been this year. But we continue to get pressure including on the non-recruitment package classified one-off business. And so that’s an element that we’ve seen actually over the last two years and I think that’s pretty common across the industry but has had an impact on us specifically. From a guidance standpoint, I would say that Q4 the expectation – we give a range of expectations. So I think what you’re seeing in Q4 is the ongoing falloff in the business not necessarily the accelerated rate, because it’s a range. But I think you’re seeing what we’ve seen earlier in the year. From a customer standpoint, one of the things we hear – the most common when we serve customers who leave us is that they don’t have a need. So remember from a tech standpoint, we address customers across a broad range and putting customers that are not typically long-term tech users. They may have an annual contract, because they had a number of roles to fill but the largest single response when we serve any of these customers is that they don’t have a current need. And keep in mind from a retention rate, I know we’ve talked about this lots of time in the past but just as a reminder, the retention rate which is around 70% or so, we get about half of the customers that we don’t retain in the month they’re up for renewal back at some point. These are following month or two months later or three, six months later. So that retention rate is understated when you look at it over a longer term. So we do have customers that leave us in the short term and then come back. One of the issues we’ve had which we’ve talked about quite a bit that we’re addressing with some of the integrations we’re working on is attribution. So we hear from customers even though we send them resumes and profiles and we send them applications through our system, the attribution that we have with customer systems is not good. And so customers continue to focus on ROI and in our view that we believe they don’t measure adequately. So that’s one of the reasons why we are absolutely focused on integrations with the ATF systems and we’ve seen this uptick for the customers that we’ve integrated, which is about 575 to-date out of the 7,000, we’ve seen an uptick in retention rate both in terms of number of customers and in revenue that we retained from those customers. So, we’re focused on that. We’re putting that in place. We think it will have a positive impact but it will take some time for us to see that through. On Rigzone, I would say Rigzone – the energy business continues to be worse and worse. We had expected at some point, it would plateau. That hasn’t happened yet. It certainly hasn’t happened outside North America. I think in North America, we’ve seen some signs and I will stress that there are some and one-off signs where things are starting to stabilize. But that industry and that business for us is pretty awful. There’s a fair amount of consolidation, including one announced yesterday. Two of our customers are going to combine. And the other thing about that, what’s going on in the industry today that I think is a little different from past downturns and will impact the business in the near term is the amount of credit that’s been extended in the oil and gas industry over the last couple of years will now come home as the impact of oil prices continues to stay for a longer period of time, the debt burden on a lot of entities that are customers of ours or have been customers of ours will run its course. So we’re not terribly optimistic in the short term. We’re doing what we can to balance that business. But from a recruitment standpoint and an ability to invest in people standpoint, the Rigzone business and the energy business in general is pretty awful. Not sure how else to say it other than be direct about it.

All right, great. Thank you.

Thank you. [Operator Instructions]. The next question comes from Randy Reece with Avondale Partners.

Good morning. Can you hear me?

Yes.

Okay. I had a question about the implications for your other brands in the strategic shift toward emphasizing technology. Do you have an intention of divesting any brands or maybe turning the revenue mix within those brands in a different direction?

So the answer to that is no. The strategic alternatives process that I talked about earlier is for the whole company and the portfolio of businesses we have today. I think from focusing on tech first, as I described earlier and I’m happy to describe it a little bit more with some more specificity, is tech is half the business. Tech is an employment vertical that spans all industries and I think we believe gives us a greater opportunity to reach more potential customers, so we’re going to develop more of our energy to that. It doesn’t come at the expense of the other. So we think that the other brands in varying degrees will have derivative impacts. So I mentioned eFinancialCareers, BioSpace, which is the smallest of our businesses is somewhat tech focused and we think could benefit from that; certainly ClearanceJobs which is heavily tech focused and is a business that continues to grow nicely and has been growing nicely for a period of time. Those businesses will have derivative impacts but we believe that there are a couple of things that come from focusing on tech first. One, it expands our opportunity in that tech vertical across many industries. And two, it allows for us to bring new products and services not all of which are tech focused. So a business like getTalent which is designed for the whole enterprise having relationships throughout various businesses within different industries will give us an opportunity to sell those products. And those products like getTalent or Lengo or FreshUp can be sold by the other brands. So, for instance, some of the first customers of getTalent were healthcare businesses. And so the healthcare team has the ability to sell getTalent as part of its go-to-market strategy. So I think this focus of focusing on tech first, expanding our product portfolio, using tech as the linchpin opens up other avenues for the other brands. So the answer is no. We don’t have any plans to divest those today. We are talking about strategic alternatives for the whole company as a package.

The healthcare business in particular has been notably soft and it’s kind of in a parallel with the performance of your job posting trends in healthcare as well. And I was wondering if you could give us an idea of what has been going on in that marketplace this year?

Yes, so I think there’s a couple of things. Some are specific to us and some are industry in general. Certainly longer term – midterm and long term, there’s an increasing need for healthcare professionals and I think that will win the day over a long period of time. In the near term, we hear an awful lot of budget constraints. There’s consolidation in the industry. There’s pausing, uncertainty about funding and financing and consolidation and there’s concern at some level about single payer. There’s a lot of noise in the industry that while there’s an ongoing need, there’s a lack of impetus from a budget standpoint and that certainly impacts us. We think longer term, there’s a number of elements that will work in our favor but that impacts us in the near term as general. As it relates to us, this business historically has been based on relationships with associations. The environment for aligning with associations is incredibly competitive. We have gained some, we have lost some. There’s a shuffling of association relationships. In the meantime, we are investing in building the brand and have been investing in building the brand, Health eCareers, and trying to minimize at some level the pure reliance on those associations. And it showed some traction but it hasn’t resulted yet in increased usage and that together – we have some new products. The interest in those products is really high. The customer impetus to act on that and spend on those has been slow so far. So it’s a combination of external factors and something specific to us.

Thank you.

Thank you. [Operator Instructions]. All right, there is nothing else at the present time. So I would like to return the call to Mike Durney for any closing comments.

Okay. Thanks, Keith. So thanks for listening today. As always, we are available for follow-up questions to the extent you have any. So we’re here at your disposal. So please contact us and thanks again for listening, and have a good day.

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