Rachel Ceccarelli - Director, Corporate Communications Art Zeile - President and Chief Executive Officer Luc Grégoire - Chief Financial Officer

Kara Anderson - B. Riley FBR, Inc. Jafar Azmayesh - 1776 Holdings

Hello, and welcome to the DHI Group Inc., Third Quarter 2018 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity as questions. [Operator Instructions] Please note this conference call is being recorded. I would now like to turn the conference over to Rachel Ceccarelli. Ms. Ceccarelli, please go ahead.

All right, thank you, Keith, and good morning, everyone. And welcome to our Third Quarter Earnings Conference Call. Joining me today are Art Zeile, President and Chief Executive Officer; and Luc Grégoire, Chief Financial Officer. Today's call includes certain forward-looking statements, particularly statements regarding future financial and operating results of the Company. These are based on management's current expectations or beliefs and are subject to uncertainty and changes in circumstances. Actual results may differ possibly materially from those expressed or implied in these forward-looking statements due to changes in economics, business, competitive, technological and/or regulatory factors. For a discussion of the principal risks and factors that could affect the Company's future results, please see the description of risk factors in our current annual report on Form 10-K for the year ended December, 2017, and in our quarterly report on Form 10-Q in the section entitled Risk Factors, Forward-looking Statements and Management's Discussion and Analysis of Financial Conditions and Result of Operations. The Company is under no obligation to update any forward-looking statements, except where required by the federal security laws. During today's call, we will be referring to certain financial measures, including adjusted EBITDA and adjusted EBITDA margin that are not prepared in accordance with U.S. GAAP. Information about and reconciliations of these non-GAAP measures to the most directly comparable GAAP measure are available in our earnings release, which is posted on our website at www.dhigroupinc.com. Now with that, let me turn the call over to Art.

Thanks, Rachel. And good morning to everyone who has joined our call. We appreciate your interest in DHI. I am pleased to be here today to talk about the progress that we've made in moving our business forward this past quarter. We finalized the last of our non-core divestitures, completing our transition to a company with three complementary tech-focused brands. The fundamentals of the business are showing solid improvement. Reinforced by clear, strategic priorities that are already delivering results. With the addition of a Chief Product Officer, and a Chief Marketing Officer this quarter, we now have a strong execution-oriented management team in place. Our strategy of delivering high-quality specialized offerings for technology professionals and the employers who recruit them addresses a substantial unmet need in the marketplace. ClearanceJobs also known as CJ is an excellent example of this, and the template for how we believe DHI will look in the future in each of its brands. CJ connects employers with actionable candidates through functionality and communication tools that I believe are the most innovative and sophisticated in the market today. The employers and candidates who use CJ view it as an invaluable and irreplaceable resource. And CJ's revenues have been consistently growing at 20% plus year-over-year as a result. CJ is effectively our test bed for innovation. The introduction of TalentSearch with IntelliSearch in Dice this past quarter was the first step in enabling Dice to deliver an equally strong value proposition. The key features that make the CJ experience unique and compelling are now embedded in our Dice and eFinancialCareers or eFC product roadmaps. In addition to the progress we're making on the product side, our fundamentals are also improving as a result of the changes we have made to our sales strategy and the work we are doing to rationalize our expense base. The rate of our revenue decrease continued to slow this quarter. And we're on course to hit the inflection point in the fourth quarter with positive year-over-year growth following in 2019. Equally important, we delivered an adjusted EBITDA margin of 21% this quarter, ahead of our 20% expectation. These results are consistent with our belief that there is a significant untapped opportunity in the revenue and cost sides of the Company's financial position. My executive team is fully committed to delivering a combination of strong business execution and financial discipline. Coming on Board roughly six months ago, I felt urgency to eliminate the distractions that were taking us away from our tech-first mission, which included completing the divestitures of our remaining non-core business. We accomplished this in the third quarter with a spinoff of Rigzone. We also closed Dice Europe as scheduled and reallocated certain of those resources to eFC. These actions now allow us to dedicate our full attention to growing our three tech-focused brands: Dice, CJ, and eFC. My second strategic priority is to implement strong frameworks for product, sales and marketing. On the product side, we have started to establish a regular product-delivery rhythm. DHI is first and foremost a product company. Our value proposition is a function of our innovation and our consistent delivery of new features, functionality and tools that drive better outcomes for our clients. At our current pace, you will see significant product delivery from us each quarter going forward. In September, we launched TalentSearch to Dice users as scheduled. Over the next three quarters, we plan to launch a new platform for CJ, a new Dice capability called Candidate Match, and communication tools in Dice. The rollout of Dice TalentSearch with IntelliSearch is well underway. With approximately one-third of the customer migration already completed. While still early days, the feedback from clients has been extremely positive with many noting that this is a different Dice. TalentSearch is an umbrella capability that has enabled us to deliver significantly new functionality to Dice users that has already been tested and actively used by CJ clients. IntelliSearch is unique to DHI in the market, and gives clients a significantly better search experience by using data science to match candidate skills to job requirements. We are already seeing a significant change in how clients are utilizing Dice, with an increase in usage of more than 10% since the rollout in late August. Likely-to-switch was another enhanced feature delivered with the rollout, which gives employers the ability to gauge the likelihood that a candidate will be receptive to their job offer. This helps clients make more efficient use of their time, as they evaluate a slate of actionable candidates. These tools satisfy two critical needs for our clients. Using search algorithms that are specifically tailored to the tech industry, and targeting high-quality actionable candidates. Match and candidate quality are key strategic themes for DHI, as we move forward. No other company in the recruiting space differentiates its products based on these two attributes. In the first half of 2019, we plan to introduce two new tools that will significantly change the Dice client experience. The first is candidate match, which will grade each candidate's skills and experience against the requirements of a job posting. The second is a full set of communication tools that will enable employers to communicate directly with candidates in a manner that reflects the right context, whether it's text, voice or video. We believe that the combination of these enhancements will bring Dice to market parity and beyond, making it the place where all the tech pros go, by advancing its functionality to a level of CJ's. We anticipate that this will be complete by the end of 2019. CJ continues to be a bright spot for us in terms of both growth and product innovation. CJ hit a record number of job postings and candidate connections in this quarter, further evidence of its value proposition despite the extremely tight job market for cleared professionals. CJ's new platform will be our major product release in the fourth quarter, and it will include large-scale improvements to user workflows, a fully redesigned messenger app that includes live chat and deeper integration of ClearanceJobs Voice, which enables employers and candidates to talk live over the CJ platform. In eFC, we intend to implement enhancements to increase client engagement with the platform and to continue building a robust database of fin tech professionals. We added a new functionality this past quarter called My Job, which allows candidates to more effectively manage their application and interview processes. Once the TalentSearch rollout is complete in Dice, it will be implemented next in eFC. My third strategic priority is to build functional excellence. In sales for Dice, we made significant changes this past quarter, shifting our emphasis from client retention to new client acquisition. We are pleased that Dice's recruitment package customer account remains steady at 6,200 for the third consecutive quarter end, as we added high-value clients to our mix. But we are not complacent about this result. Our client count needs to grow with a significant portion of that growth coming from direct hire employers. We have already added a number of new names to Dice's client roster including several new Fortune 100 customers this quarter. We are encouraged by these results and executing against our new sales strategy will remain a critically important focus for me and my team. We are also developing managed services, which are a natural complement to our products. And the initial feedback from clients has been extremely positive. We are looking at ways to help our clients solve issues that go well beyond just providing them access to Dice's database and tools. Our managed services offering provides them with dedicated help to find candidates for hard-to-fill positions for an additional fee. Managed services are one of several ways in which we are leveraging our resources to build functional excellence and expand the value we deliver to our clients. Our final area of focus this quarter has been completing the organizational structure necessary to successfully execute against our strategic priorities. On our last call, I mentioned that we were looking for a new Chief Product Officer and a Chief Marketing Officer. And we recently announced that we filled both positions. Christian Dwyer recently joined our executive team as Chief Product Officer, and will oversee product strategy, development and implementation for our three brands. Christian is a veteran product leader, who has significant expertise in two-sided markets like ours, and in driving fast-paced product delivery. Michelle Marian also recently joined our executive team as Chief Marketing Officer, and will lead our global marketing organization, including our digital marketing strategy, demand generation and branding. Michelle has held leadership positions in digital marketing for two decades, with several sophisticated consumer brands. She brings a wealth of experience that will elevate our digital marketing efforts. So to summarize, we are executing well and are fully focused on capitalizing on the opportunity to address a substantial unmet need in the market for recruiting technology professionals. I'm confident in our tech-first strategy and our execution plan. Based on our experience with CJ, we can continue to create innovative, network and community features for tech professionals that can be quickly replicated in Dice and eFC. We have made significant progress forward in a short period of time and we remain focused on executing with discipline and urgency. With that, let me turn the call over to Luc, who will take you through our quarterly financials and then we'll take any questions you may have. Luc? Luc Grégoire: Thanks, Art. And good morning, everyone. Over the past quarter we made solid progress against our strategic priorities, which are to position ourselves for revenue growth in 2019, and increase the profitability of our business by streamlining our operations and rationalizing our expense base. As Art noted, our fundamentals improved this quarter, reflecting the solid progress we've made already against these priorities. Overall, our results for the quarter were in line with our expectation for revenues and slightly better for our adjusted EBITDA margin. Additionally, we are seeing improved trends in several key aspects of our business. Our rate of revenue decrease continued to slow and our customer account and related metrics are improving. On the expense side, we are slightly ahead of our expectation for margin improvement. As steps we've taken to increase spending efficiency are starting to take effect. As Art mentioned, we're moving with a strong sense of urgency on many initiatives, both financial and non-financial. And are seeing early indications that our actions are having the right impact. For the quarter, we reported total revenues of $38.9 million, or 26% lower year-over-year, driven by the divestiture of our four non-tech businesses, including the spin-off of Rigzone and the closure of Dice Europe in August. For our remaining tech-focused businesses that is Dice U.S., ClearanceJobs and eFinancialCareers revenues were $37.5 million, down just 1% year-over-year. This result reflected a narrowing rate of revenue decrease in Dice U.S., another quarter of record revenues for CJ, and modestly increased revenues at eFC. With the divestitures and closure of Dice Europe behind us, that $37.5 million gives us a solid base for revenue comparisons in future periods. We are pleased with the ongoing improvement in our overall revenue trend. As we continue to improve Dice's customer metrics, we expect to keep their current path and cross the line from yearly revenue decrease in the third quarter to flat revenues in the fourth quarter, and then begin revenue growth early next year. Now let me drill down on the revenue that are tech-focused. Dice U.S. revenues were $23.7 million in the third quarter or 6% lower year-over-year, reflecting the progressive narrowing of the gap from the 11% and 8% decreases of the first and second quarters of this year. Dice recruitment package customers or RPCs remained at 6,200 at quarter end, unchanged from this year's first and second quarters. It's the first time that we've seen this level of stability in more than three years. The count is being helped by a number of new customers added in the quarter, which was higher than last year's additions by nearly 100, while the renewal rate on customer count remained in the mid-60% range. New customer additions typically see a seasonal slowdown in the fourth quarter, but we believe that the positive trends should return in the first quarter of next year. Another contributor to Dice trend improvement was our revenue renewal rate for the quarter, which was 76% or three percentage points higher than last year's third quarter with a modest uptick in average monthly revenue for RPC to $1,125. We feel that these measures will further improve as we build momentum on the sales side. CJ revenues for the quarter were $5.4 million or a 22% increase in the year-over-year and the 11th consecutive quarter of 20%-plus growth. This high growth rate continues to be driven by strong demand for CJ's candidate database, considered the highest quality and most relevant source of cleared candidates with our clients. CJ's success underscores the importance of offering recruiters and hiring managers the right tools and content, and also maintaining a high degree of relevance for candidates. As Art noted, these features remain significant sources of competitive differentiation for us. eFC's revenues for the quarter were $8.4 million, which was 2% higher year-over-year with no material foreign exchange impact. With the closure of Dice Europe, we can now apply our entire international focus to enhancing eFC's functionality and content leadership Our corporate and other revenues for the quarter were $930,000, which consisted entirely of Rigzone prior to its spin-off. This compares to $6.1 million in the prior quarter, with the entire amount of decrease attributable to the effect of our divested businesses. To round out the revenue pictures, the divestiture of Healthcare last December resulted in a $6.5 million decrease in the year-over-year revenue comparison for the third quarter. Now turning to operating expenses. Our operating expenses for the quarter were $37.1 million, a decrease of $12.8 million or 26% year-over-year. This change was mainly due to the divestitures of our non-tech businesses, which reduced operating expenses by 25% or $12.3 million. Operating expenses for the remaining tech-focused business decreased by $600,000 year-over-year, mainly driven by lower marketing expenses and a fixed asset impairment in the 2017 third quarter. These decreases were partially offset by increases in disposition related and other costs, and legal and professional fee. The quarter's effective tax rate of 17% was lower than our expected full-year rate of 27%, primarily due to the benefit on the tax laws of the Rigzone spin-off. In the fourth quarter, we expect a rate of 27% subject to the effect of discrete items such as stock-based compensation. Net income for the quarter was $0.9 million or $0.02 per diluted share. This result includes the adverse effect of $1.9 million or $0.04 per diluted share of disposition related and other costs, and a small book loss on the spin-off of Rigzone. Adjusted EBITDA for the quarter was $7.9 million and our adjusted EBITDA margin was 21% compared to our target of 20%. This was driven by expense efficiencies, primarily in marketing, where we're focused on increasing the effectiveness of our spending through greater emphasis on customer and candidate acquisition ROI. With the divestiture of our non-tech businesses behind us, we are now intensely focused on streamlining our expense base. In addition to better deployment of our marketing resources, we've identified further savings in our operating expenses, such as more effective vendor management and infrastructure efficiencies. We are still in the early stages of realizing these savings, and believe that with the opportunities we've already identified, we can drive progressive margin expansion of a few points from the current level in the upcoming quarters. We generated cash flow of approximately $400,000 for the quarter, a $3.1 million year-over-year decrease, driven by lower earnings from both tech-focused and divested businesses. Separately, regarding our conversion of adjusted EBITDA-to-cash, net conversion rate was lower this quarter for two primary reasons. First, we change our billing terms to bring them in line with the market standards at the start of this year. As a result this quarter, we collected approximately $4 million less in cash upfront. Second, we incurred approximately $2 million of disposition related and other costs, which are excluded from the calculation of adjusted EBITDA, but still reduced our operating cash flow. We anticipate that the conversion will gradually improve over the next several quarters as the effect of the billing change begins to catch up and our disposition related and other costs start to decline. Now let me address a few balance sheet items. During the quarter, we repaid $2 million of debt, using repatriated cash, bringing our balance to approximately $17 million at the end of the quarter. Our net debt was approximately $12 million and our average ratio was 0.5x. Our strong liquidity and balance sheet remain essential to supporting our strategic execution. We repurchased approximately 347,000 shares during the quarter. Going forward, we'll continue to opportunistically repurchase shares. But we will also carefully evaluate our first use of cash, with our ongoing priority being investing in our business. In the fourth quarter of this year, we expect our weighted average diluted shares outstanding to be approximately $50 million. In closing, I'd like to emphasize that we have a clear path ahead of us with improving top and bottom line fundamentals. We believe that we can provide substantial incremental value add to both candidates and employers who leverage our brands to find talent, convey content, and fill jobs. With the current trends in our business and all of the initiatives we have underway, we remain confident in our ability to capitalize on the market opportunity in front of us, grow our revenues and deliver on the meaningful operating leverage that's embedded in our business. And as always, I'd like to thank you for your interest today. And with that, I'll turn the call back over to Art.

Thanks, Luc. I'd like to close by once again thanking all our employees across the world for their hard work and dedication over the last quarter. Without your focus and commitment, we would not have been able to make such great progress. With that, we're happy to take your questions.

Thank you. At this time, we will begin the question-and-answer session. [Operator Instructions] And the first question comes from Kara Anderson with B. Riley FBR.

Hi, Kara.

Hi, good morning. Luc Grégoire: Good morning, Kara.

Just wondering if you guys can elaborate a little bit on attracting new clients to Dice, how do the addition this quarter compare to say the first half of the year?

I'd say that there was a significant increase in the actual clients that we are able to bring on board. And when I think about the trends that are behind the business, specifically with regard to sales, you know at the beginning of this year we brought onboard a new sales leader, and he's making a distinct impact. We've also stood up an enterprise field sales organization and that continues to grow. We've actually changed out mid-level sales leaders. And we have done a lot of account rebalancing, and what I mean by that is that we essentially have moved accounts between sales reps so that the more significant and more impactful accountants are in the hands of our best sales reps. So there's been a lot that's happened since the beginning of this year. And we're starting to see the effects of all that.

Great, and then on the initial reception of the TalentSearch, the launch at Dice, is it leading to new business? Or is it kind of too early to make that call or make that determination?

I think that it is starting to lead to new business itself, although, it's early days. Our very first customer migration took place at the end of August. So think of TalentSearch as being super foundational for us. I mean it's a new technology platform, we're moving all of our customers, 6,200 of them, from their old version of TalentSearch to this new version, what we call TalentSearch 4.0 internally. And so they're moving in waves. And the salespeople that are essentially addressing new prospects are putting that front and center are saying this is a much better type of search, it's non-bullion search. You can put in your entire job posting to get a relevant result. And because of the nature of the sales cycle, I think, we're going to start seeing the real effect of TalentSearch towards the end of this year or first quarter of next year, once all customers are moved. And the sales team really has a rhythm around how to pitch it.

Okay. And then, I think I heard you guys say a couple of times that you're expecting positive year-over-year growth in 2019, can you elaborate on that a bit, maybe what specifically drives that?

Well, so I can elaborate on it mechanically and I'll let Luc also follow up with this. But I mean, obviously, we have three engines for growth inside of DHI. The first is ClearanceJobs, the second is eFC, the third is Dice. So if you mechanically look at those three engines, CJ is a $22 million run rate business, eFC is approximately $34 million run rate business, and Dice is $95 million. CJ is actually growing right now at about 22%. So it's a growth engine for us. eFC is roughly about 2%, and really the question mark is Dice. Dice has sequentially decreased its rate of decline. So if you talk about first quarter of this year, it was negative 11% year-over-year revenue growth. Then in second quarter, negative 8% year-over-year revenue growth. Third quarter, negative 6%, so you can see the trend line and the real key is that we believe that Dice is turning around. And it's because of those things that I just spoke to earlier associated with sales. There's been a lot of work behind the scenes to make sure that we have an effective sales organization, and that we have the products that are necessary for them to sell. And specifically, to the direct hire universe of customers. I'll let Luc also follow-up. Luc Grégoire: No, I think that's right, Art. Remember we're basically most of our businesses is annual subscription if you like. And that revenue slope is relatively predictable once you get in that pattern. So you can kind of extrapolate where that's going.

Got it, and then can you discuss the decision to, I guess, spin-off the last part of the Rigzone business after sort of retaining that piece earlier this year?

So we still have a ownership interest in Rigzone, Kara. And the decision was really made as a matter of eliminating distraction. Coming on board as a CEO, six months ago, I've recognized that the tech-first strategy really did make sense. And Rigzone, obviously, although, it could probably have tech in certain parts of the oil and gas industry, it really doesn't fundamentally line up with tech-first. And so I wanted to make sure it was very clear to our engineering team, our marketing team, our sales team that our priority and full focus had to be on tech. And so with that in mind, I approached the folks that are essentially the management team of Rigzone and suggested that a spin-off would make sense for us. And that it was an opportunity for them. And again, we still have an ownership interest there. But it was a matter of really making sure that our team fundamentally realizes that focus was a really super important goal for us.

Got it. And then Luc, can you just talk a little bit about the impact of the model as a result of spinning that off of the majority, I guess? Luc Grégoire: Sure. Well, you have in our filing this morning the supplemental schedule that will show you the revenue that we were tracking on this. They were – both businesses that the Dice Europe that we closed and Rigzone were at best breakeven with a slight loss. So it actually improves marginally on the bottom line and the dollars are in the supplemental schedule. Around $5 million a year is the impact on the consolidated results on the top line.

Thank you. That’s it for me. Luc Grégoire: Thanks Kara.

Thank you. And the next question is from Jafar Azmayesh with 1776 Holdings.

Good morning, guys. Can you provide an update on your discussions with TCS, where that's headed?

So Jafar, we cannot comment at this time. But I want to reassure you that our Board is committed to acting in the best interest of the company and its shareholders, and we will of course, provide you with an update when further information is available. But that's all we can really say at this time.

Can you give us your best guess, generally speaking, of why a company would trade at half of what an offer on the table has been presented for?

Again, we can't comment on any kind of discussions or even hypothesize about how people are reacting to that in the investor’s center.

Okay. And my other question relates to the share repurchases, which for several quarters now you mentioned as opportunistically – opportunistic. So my question is if you're trading at a fraction of what a third-party things you were and that's not opportunistic enough, what is opportunistic?

I think opportunistic, Jafar, as you know – it can be different things. It can be the volatility. It can be the price point. We don't comment on that, but I mean, we do look for opportunities to buy and recognize value for the shareholders.

I guess what I'm saying is I understand that and here we are at $1.70 a share, there is an offer at $2.50, and you have not seen opportunity at $4, at $3, at $2, at $1.70, so is your signal to us that you think the shares were substantially below what they're trading at?

Yes, we're not commenting on our signals or what we think the shares are trading at. We bought back 347,000 shares in the quarter. And you have the value at which we did that and we'll report that as we're required and as the discussions progress.

As you know, the share comp line is about $5 million, so buying back $700,000 of shares doesn't even get close to offsetting that. Is that the pace we should expect when you say opportunistic? Or is there something meaningful that can happen at some point?

I would say that we can't comment on that and it's a specific program that we put in place. So we can't really tell you about the mechanics of that program.

Okay. So basically your message is more of the same stuff that hasn't worked and we hope it will start working?

I don't think we are messaging what we plan to do here. And again, we're not at liberty to discuss these details.

Is it fair to now say with the changes you've made to your billing terms that you're going to be needing to get into your revolver? And that we should expect some level of that, maybe higher than where it is today, as normal level for the business?

Well, I think what – I would say that the levels of arrears billings that we're seeing have kind of – are kind of held now for a couple of quarters. So I'd say it's a working capital adjustment. So we should be able to revert. The fourth quarter is seasonally high invested in the working capital, because of the peak to the business near the end of the year, and we should collect that in the next quarter. So we're like down about maybe 12, 13 points on announced [bill] upfront for the year. So I consider that a transition and we should be picking up the cash flow again in the upcoming quarters.

Got it. And Art, I just want to put my $0.02, since you're new to the game. We've been talking to the Company for 18 months now and the message has been consistent, which is you have a solid business, it's been challenged, but it's strong and Dice is showing that it's gaining traction or at least it's putting a bottom in. The mistake that's ongoing at DHX, and we can't figure out what it is, and you're hearing it from us, and you're hearing it from TCS, you're hearing it from others is the financial side of it. You're trading at substantial discounts than what any logical person thinks you were and yet management refuses, I should say the board really is who it sits with, refuses to do anything to help shareholders or at least help the market get a sense for what these shares are worth. And it's a travesty and I hope TCS gets through to you guys. And I wish you all the best for stabilizing the business even further.

I appreciate it, and we are obviously focused on what we consider to be our primary mission, which is growing this business and making sure that we have financial discipline as we do so. So thanks very much for your comments. End of Q&A

Thank you. And as that was the last question, this does conclude the question-and-answer session. I would now like to return the floor over to Rachel Ceccarelli for any closing remarks.

All right. Thank you for your interest in DHI Group. To speak with management today, please e-mail ir@dhigroupinc.com to be placed in the queue. Have a good day.

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