Brendan Metrano - VP, IR Mike Durney - President and CEO Luc Grégoire - CFO

Kara Anderson - B. Riley & Company

Good morning, and welcome to the DHI Group, Inc. Second Quarter 2017 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. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brendan Metrano, Vice President of Investor Relations. Please go ahead.

Good morning, everyone. With me on the call today is Mike Durney, President and Chief Executive Officer of DHI Group Inc.; and Luc Grégoire, Chief Financial Officer. This morning, we issued a press release describing the company's results for the second quarter of 2017. 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 here due to changes in economics, business, competitive, technological and/or regulatory factors, and the planned divestiture of our non-tech businesses, and the possibility that such divestitures do not occur. 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 the Conditions and Results of Operations. The company is under no obligation to update any forward-looking statements except where it is required by federal securities laws. Today's call also includes certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin. For details on these measures, including why we use them and reconciliations to the 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. With that, I'll turn the call over to Mike.

Great, thanks Brendan, and good morning everyone. Thanks for joining us today. So today I'll update you on our alignment around our check-post-focused strategy, including progress against key initiatives, then I'll discuss our goals for the remainder of the year, provide an update on the competitive landscape, and discuss how we'll return the business to growth. Then I'll turn it over to Luc who will provide a financial overview and update on where we stand with the divestiture of the four businesses. And lastly, we'll open up to questions. So we made progress since our last update, however we have a ways to go. We've rolled out some big changes internally to move us forward and return the business to growth. Our vision, which we articulated in May, is to serve tech professionals and resolve pain points for customers who recruit tech talent through next-generation products and tools. When we laid out the strategic initiatives of the company last quarter we outlined several key objectives. Last time, we discussed an issue of, number one, focusing resources behind our core tech talent brands. In the second quarter we realigned our organization to streamline management and decision-making. As part of this adjustment the senior management team has taken a more hands-on role in the day-to-day operations of our tech-focused brands, which include Dice, ClearanceJobs, and eFinancialCareers. This functional structure is designed to accelerate the implementation of our strategy, and we've already seen efficiencies gained from this realignment. We're organized our product, development, and marketing teams into two focused areas, customer performance and professional engagement. This brings the absolute focus we need in serving these two constituents. Today, we'll discuss the next two. We set five goals for ourselves for the remainder of 2017. Number one is returning the Dice business to growth. Dice represents a significant part of the business today and has the greatest opportunity, driving usage among customers while also attracting professionals during the arc of their career is paramount to moving Dice forward, and ultimately optimizing shareholder value. Number two is repositioning our brands to be the go-to resource to find and connect with the best talent. Our specialized tech focus and deep understanding of the professional communities we serve are a key differentiator for DHI. This comes from our specific focus on skills and the proprietary data we have related to skills. Number three is develop new products, services, and insights to help professionals manage their careers. Tech professionals should have the tools and insights they deserve to achieve the career they desire, and we'll be there to guide them along the way. Number four is to create an efficient organizational structure to serve the changing needs of clients and professionals. We have the operational pieces in place, so now we need to execute on pulling them together given our organizational changes. And number five, is employ a highly engaged team to drive performance. We have passionate employees here, and our team members are key to success. We've established a number of measurements against these goals, and we'll share those with you going forward to demonstrate our progress against the goals. So let's start with discussing initiatives and key highlights on the customer side. The rate of decline in the Dice customer count receded slightly in the second quarter. This is partly due to pursuing initiatives that improve our relationship with customers and provide more flexibility for customers, and reestablish the overall value of Dice. Our sales approach of leading with Open Web First has proven to be successful since launch, and is driving our penetration of the social sourcing tool with recruitment package customers. The bucket-view model has driven up active Open Web clients two-fold from a year ago, and today, over a third of Dice annual customers are Open Web clients. As more customers use Open Web we work to solve the pain point employers encounter trying to hire hard-to-find candidates. Social continues to be an opportunity for companies to recruit candidates, and we offer customers the ability to target desired professionals with tailored messages in social forums. Lengo leverages Open Web data to assemble candidate lists based on skill sets, work experience, employer, location, or interests. As employer branding becomes more important in recruiting we see the great potential of Lengo. eFinancialCareers is broadening Lengo in its sales offering, and as an example, business schools in the U.K. appreciate the benefit of targeting candidates through social media. Financial services companies and large defense contractors have also launched Lengo campaigns to get in front of professional. eFinancialCareers has a tremendous presence in the U.K. and we're building on our strong position there to expand our fin tech and new product offerings. The market there is fairly stable, although Brexit uncertainty remains. Many firms appear to be in a wait-and-see approach until further clarification, and Brexit is driving some firms to move roles out of high-cost locations, like London, to other areas of the U.K. or Eastern Central Europe. This creates an opportunity for us in less developed markets. One impact has been on recruitment agencies in the U.K., they have the client mandate for searches, so the demand side is healthy. But they're having a harder time extracting professionals from their current, so the supply side is restricted. But we have seen growth in the first half in other markets, like France, Germany, and Benelux. The market for security-cleared professionals is a critical juncture as the demand for candidates with active security clearance rises while the number of skilled professionals continues to fall. The time to clear professionals is the highest we've ever seen, as is the number of open roles for security-cleared talent. ClearanceJobs has over 25,000 posted jobs today, up 67% year-over-year. Employers using ClearanceJobs are having tougher time finding, engaging, and hiring cleared professionals. And budgets are tight. The supply/demand imbalance in security clearance is really significant, and ClearanceJobs is working to provide clients with flexible pricing options and attractive recruiting solutions. The time to hire professionals across all industries in the U.S. reached a record level of over 30 working days in this quarter, according to our proprietary DHI Hiring Indicators report. It's a real challenge as employers have initiatives to move along, yet can't find the qualified talent to work on projects. There are a number of ways for employers to be competitive and quicken the time to hire. One option is pipelining and building a bench of talent before a position opens, like with getTalent, which we offer with our suite of solutions. With Lengo, Open Web, FreshUp, and access to professional talent communities through Dice, eFinancialCareers, and ClearanceJobs, the combination of these services we offer is unique in the market. Improvements through our ATS and API strategy have driven an uptick in customers integrated with these products. A common problem for us and our competitors is attribution. Customers can't understand the value provide if they don't accurately measure the source of their new hires. So in the APAC region, for example, our match-back program has successfully shown clients how many candidates they've hired through our services. We exchange data with clients to determine the number of hires made with influence by our sites. Here, we're developing a relationship as a trusted partner in their hiring process. And our Chrome extension and improvements to our search platform are several ways we're driving efficiency and accuracy for customers sourcing candidates on Dice. As part of our strategy to elevate Dice's brand recognition we've expanded our marketing efforts. In the quarter, we secured a partnership with digital media site, Bustle, in which Dice sponsors content for Bustle users. The Bustle audience is predominantly millennial woman, and we view this relationship as a good collaboration as we advance our leadership position with women in tech. We've also partnered with Spiceworks, a networking community for tech professional who seek advice and purchase tech-related services. Dice is the exclusive provider of jobs to Spiceworks, and all Dice jobs are [indiscernible]. There's more to come with partnerships, and we'll announce those in due time. We've created local campaigns in a number of secondary tech markets across the U.S. to amplify the Dice presence. And our targeted social ads together with radio spots on NPR and Spotify are putting Dice top-of-mind for employers and tech professional. Deepening our engagement with professionals also has a positive effect on our relationship with customers. When employers come to Dice they'll find active, highly skilled tech talent. Our services are more than just a place for tech professional to find new jobs. It's certainly a large part of what we do, however we also offer unique content with proprietary data to help tech pros navigate their careers. Tech professionals want employers to find their information efficiently to have the ability to easily demonstrate their qualified for open positions and to find useful advice on how to grow and manage their careers. Dice is solving for all of these three new products coming, such as including a designation on tech professionals' profiles to show they've completed assessments through our partnership with [indiscernible]. While not the only reason that tech candidates choose their new jobs, salary plays an integral role in the livelihood of tech professionals. The Dice Careers App, which provides tailored salaries, job recommendations, and career mapping based on tech pros' information has had over 470,000 downloads to date. Monthly unique visitors grew 52% year-over-year. This shows users continue to engage with the app to discover relevant salary information while learning about skills they should acquire to boost their value. A new home screen launched in the quarter resulted in higher engagement with market value and career path features. We've extended this functionality of the app into the on-site experience too, and there's more to come on this as we fully launch the product and push forward the career exploration features. Security-cleared professionals are benefiting from a dedicated time when employers are signaling they're available for virtual networking which we call the Happy Hour, and it promotes a time each week when a large number of candidates' employers are logged into the ClearanceJobs platform. Candidates and employers make use of ClearanceJobs' newly launched live text and voice chat to engage, exchange opportunities, and network. The Happy Hour resolves the major pain point among employers and professionals of catching each other when the time best suits them. It's this effort to actively engage and improve the career search experience that's setting DHI up for further success. As we think about our strategic goals of driving professional engagement, repositioning our brands to be leaders in the communities they serve, and returning the Dice business to growth, we'll continue to explore ways to expand our addressable market. That could be through small tuck-in acquisitions, partnerships, or developing innovative products and service in-house, enabling us to remain competitive in the crowded recruitment marketplace. We have competitors every direction, from large established companies to startups constantly entering our space. We're happy to report our job ads are included in the new Google for Jobs widget which optimizes relevant jobs from our sites to the top of Google's search results. There is a fair amount of chatter surrounding Google's launch, however as we were a launch partner for their Cloud Jobs API and this widget improves the search experience for their users, I believe Google used careers site providers as partners, and ultimately that's a positive thing for our industry. The competitive nature of our industry has implications for a topic that's important to investors, which is capital allocation. In a dynamic industry like ours incumbents need to innovate and evolve. It's critical we increase investment to reinvigorate and sustain the tech franchise. For that reason reinvesting in our core tech businesses is our top capital allocation priority. Similarly, we need to move with speed today to address market changes, and extension opportunities. And often times it's faster and more effective to acquire an existing product of feature set. So our second priority is strategic bolt-on acquisitions. To be clear, we mean small complimentary transactions, not large or transformative deals. After ensuring investment supporting our tech franchise is funded we'll allocate capital in the manner we believe most effectively enhances shareholder value over the long-term. This will change over time depending on a number of factors like the economy, interest rates, and our share price [technical difficulty], but in the meantime we've taken our free cash flow and paid down $15 million on our revolver in 2017. This is an exciting time for DHI as we look ahead to refining our tech focus, while continuing to deepen engagement with professionals, and drive usage amongst clients with the unique combination of solutions we provide. We're accomplishing a lot, and beginning to see a positive impact from the objectives we put in place. We're eager to build on our strategy in the near term, and return our business to growth. And so with that, I'm going to turn it over to Luc. Luc Grégoire: Thank you, Mike, and good morning everyone. Today I'll review the key points of our second quarter 2017 financial performance, I'll address the outlook for the rest of the year, and I'll finish with an update on the divestiture process of our non-tech businesses. Note that all my comments today exclude the results of Slashdot Media, which we sold in early 2016, and other items noted in the adjusted EBITDA reconciliation of the press release. Second quarter results were consistent with the recent trends and within our expectations, with total company revenue down 9% led by the decline of 8% in our Tech & Clearance segment. While the down trends we discussed in the first quarter continued, we are seeing progress in the adoption of our new Dice solutions to solve customer pain points, which we expect will start improving customer metrics in the next few quarters. Dice U.S. revenue declined 11% in the quarter, and continue to be impacted by competition and customer ROI perceptions. However, this quarter's customer count of 6,750 reflects the smallest sequential drop, 1%, since the third quarter of last year. And other metrics have remained in line with recent trends, including a 66% customer count renewal rate, average monthly revenue per customer of $1,108, and with 95% of our contract at 12 months or longer. ClearanceJobs revenues grew 21%, but billings growth slowed to 8% due to the tightening labor supply for cleared professionals. On a constant currency basis, eFinancialCareers revenue declined 5%, and was mainly impacted by Brexit related concerns. In total, when you add our tech-focused businesses, which include the Tech & Clearance segment and new financial careers, we had a revenue decline of 7% in constant currency for the second quarter. Our non-tech business trends were in line with what we've seen in recent periods, with aggregate revenue down 9%. Energy was the exception here, with a billings increase of 4%, its first positive quarterly growth since 2014. Operating expenses before depreciation, amortization, stock-based compensation, and disposition related and other costs were flat year-over-year as higher spending in sales and marketing was offset by savings in the other areas. The marketing expense increase was driven by Dice with a greater focus on tech professionals and driving traffic. General admin expense decreased as a result of costs we had incurred in 2016, namely the prior year's strategic planning exercise. Adjusted EBITDA for the quarter was $9.5 million, and was impacted by $1.1 million of costs related to the reorganization and divestiture process we're going through. Our adjusted EBITDA margin excluding that impact was 20.3%, in line with the first quarter. Depreciation amortization expense declined $1.2 million against last year, and that's mainly due to the energy related impairment charges that were taken in 2016. Stock-based compensation was down 26% due to forfeitures and lower grant date values. Interest expense declined slightly with lower borrowing offset by higher interest rates. Our second quarter effective tax rate of 43% had a six-point impact from discreet items related to tax accounting on employee stock compensation. Net income for the quarter was $1.8 million or $0.04 per share compared to $4.9 million or $0.10 per share in the prior year. Disposition related severance costs had $0.01 impact on the quarter. We generated $9.2 million of operating cash flow in the second quarter down $3 million from the last year and so far this year, we've reduced a balance of our revolving line by $15 million. Deferred revenue was $86 million at the end of the quarter which was in line with the prior year. Looking ahead at the remainder of 2017, we expect the rates of decline to abate progressively in the last two quarters, key drivers for tech-first business include one increasing adoption of new Dice solution based offerings demonstrate ROI and attribution which should improve our customer retention rates and win backs. Secondly continuing growth of ClearanceJobs although we don't expect to sustain the first half level of growth as the market for security clear professionals is tightening as Mike mentioned. The effect of external factors that have impacted our business are not expected to change significantly, while foreign exchange comps are expected to ease in the second half of the year, we expect the uncertainties caused by Brexit to persist. We expect the current trends in our non-tech businesses to continue in line with the first half. The operating expense run rate for the remaining quarters should be in line with the second quarter as organizational efficiencies will offset increased tech-focused spending in marketing and product development. With slowing revenue declines but holding steady the level of spending, we expect second half margins to remain in line with the first half of the year. As we pointed out before, the benefit of our -- to our top line from most of our 2017 tech-focused incremental spending has a delayed effect. So 2017 is not reflective of our ongoing run rate margin of our business by successful executing on tech-focused strategy right now, we believe that we can return the margins to 30% or more. Depreciation, amortization, stock compensation and interest expense should be consistent with second quarter run rate, the tax rate for the remaining quarters this year should be approximately 38% and diluted share count about $49 million. Finally, we have not assumed any divestiture transaction in this outlook, regarding our non-tech divestitures, we've engaged a banker in the second quarter to assist us with the process and we're making good progress, we're seeing considerable amount of activity with numerous parties looking at our businesses individually or in combination but indications of interest are not due in for several weeks. We will keep you apprised as material developments occur here. These are good businesses and leaders in their respective categories and we intend to maximize our value out of this process. Until we gain more clarity on the outcome, we will continue to preserve our liquidity for potential internal uses namely investing in our tech-first business and making opportunistic bolt-on acquisitions, once we have sufficiently progressed through the divestiture process and have a more definitive view of expected proceeds, we will reevaluate our current capital allocation policy along the lines Mike just outlined. In summary, while the top line results don't yet show, we are making progress on multiple fronts in our tech-focused strategy we're refining our portfolio receiving our organization and implementing strategic initiatives, all of which should contribute changing the trajectory of our business and should return us to grow. So thank you for your interest. I'm turning the call back to Mike.

Great, thanks Luc. So as you hear, we have a number of initiatives both operational and strategic, some are having an immediate impact, some will take a longer time to show results but we're incredibly optimistic about our direction. I'm thankful for the hard work and dedication and passion of our employees around the world and thank them for everything they do each day. And with that, we're going to turn it over to questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Kara Anderson with B. Riley & Company. Please go ahead.

Hi, good morning.

Hello.

I wanted to drill down on the $1.1 million spent on this division costs. Are those costs more one-time in nature like legal fees or severance, or how should we think about that going forward? Thanks.

Yes, they're mostly severance costs that relate either to people affected by our current divestiture process or the reorganization that we just went through.

Okay. And then, I know you are going through a process with bankers now at this point for the non-core assets, but is there a scenario where you might just wind down operations and there -- is that a sale?

So, I think the plan is to sell those. We think there is sufficient interest in all of the businesses. It varies among the four, but it looks that earlier, the amount of activity people were engaged with is pretty high, and of course there's no assurance that will get to anywhere for the businesses, but we think there's a fair amount of interest that we're going to continue to pursue. If nothing comes to fruition on one or more of them, then we'll make a decision on how we operate them going forward, and there are a handful of Plans B, C, and D, if that doesn't happen.

Okay. And then, I'm sorry if I missed it, but can you talk about how you know new products like getTalent and Lengo are been received versus sort of your internal expectations, and whether or not there's an acceleration of adoption behind the outlook for the reminder of the year?

Sure. So, we started with a number of products starting with Open Web, is the first of them, and then Lengo and getTalent, Open Web we talked about more specifically because it's got more longevity in the marketplace; getTalent we've been in the market for a little more than a year. The adoption rate has been spotty. We're continuing to refine how we bring the product to market, what the features and functionality are. It has not met our own internal expectations to be able to continue to refine how best to incorporated into the core of what we do and bring the value to market. I think there is a number of things we can do with getTalent both as a standalone product and incorporating it into the core. On Lengo, the adoption rate has been really good. It's been stronger in the U.K. in part because we have a small sales team that's been dedicated to in the U.K. and they work very closely with the development team which is also in the U.K. But we have plans now to roll it out into the U.S. and early indications are that there's a fair amount of interest. I think it'll take some time as we focus on moving people from active to passive as the world likes to look at candidates in those two buckets as active and passive, but we think that Lengo has a lot of value supplementing what we do in the core Dice even [indiscernible] ClearanceJobs businesses together with Open Web.

I guess, and then lastly, you know on the macro environment for tech professionals in the U.S, can you talk about that and what if any kind of change would be positive for Dice?

Sure. So, I think overall the macro environment continues to be really strong for tech professionals, people with specific skill sets, who are the superstars of tech are really hard to find and really hard to engage. We've said this forever and more than 15 years I've been here, the supply/demand imbalance for us to be really successful has to be somewhat calibrated, and for the last couple of years it has not been calibrated because the demand for people -- for professionals, and the skills required and the mix of skills required are so specific to finding those people is incredibly difficult. So, for us to be optimized, getting that supply/demand balance more aligned would something be better but there is certainly a need and having a need drives our business ultimately.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Brendan Metrano for any closing remarks.

Thank you, Austin. We appreciate your interest in DHI Group. If you have any follow-up questions, you can call Investor Relations at 212-4448-4181, or email ir@dhigroupinc.com.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.