Welcome to the DHI Group Incorporated Fourth Quarter 2019 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Todd Kehrli, MKR Investor Relations. Please go ahead.

Thank you, Operator, good afternoon and welcome to DHI Group's fourth quarter fiscal 2019 financial results conference call. With me on today's call are DHI's CEO, Art Zeile, and CFO, Kevin Bostick. Before I turn the call over to Art, I'd like to cover a few quick items. This afternoon, DHI issued a press release announcing its fourth quarter fiscal 2019 financial results. This release is available on the company's website at dhigroupinc.com. This call is being broadcast live over the Internet for all interested parties and the webcast will be archived on the Investor Relations page of the company's website. I want to remind everyone that during today's call, management will make forward-looking statements that involve risks and uncertainties. Please note that, except for the historical information, statements on today's call may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. When used, the words anticipate, believe, expect, intend, future and other similar expressions identify forward-looking statements. These forward-looking statements reflect DHI management's current views concerning future events and financial performance and are subject to risks and uncertainties, and actual results may differ materially from the outcomes contained in any forward-looking statements. Factors that could cause these forward-looking statements to differ from actual results include delays in development, marketing or sales and other risks and uncertainties discussed in the company's periodic reports on Form 10-K and 10-Q and other filings with the Securities and Exchange Commission. DHI undertakes no obligation to update or revise any forward-looking statements. Lastly, during today's call, management will be referring to specific financial measures, including adjusted revenues, 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 measures are available in our earnings release and in our website at dhigroupinc.com in the Investor Relations section. I'll now turn the call over to Art Zeile, CEO of DHI Group.

Thank you, Todd. Good afternoon everyone and welcome to our fourth quarter and full year 2019 earnings conference call. We appreciate your interest in DHI. We made significant progress this past year in building a strong foundation for future revenue growth and the long-term success of the company. We delivered more product innovation in 2019 and the company had delivered in the prior five years combined and we intend to accelerate the pace of innovation in 2020, as the industry leader in the growing market for matching technologists with employers. We also strengthened our go-to-market strategy as our new Chief Revenue Officer, Arie Kanofsky added top-notch sales leadership to his team during the fourth quarter. While at the same time standing up new Dice commercial sales teams in Denver and New York. These investments and further strengthening our product offering and our go-to-market strategy position us well to generate sustained long-term revenue growth in the future. Now let me elaborate on some of the things we accomplished this past quarter and year. Let's start with the progress we made in our product offering. We closed out the year having delivered over 20 marquee product releases and dozens of minor releases in 2019, the taste of our product development is increasing in 2020 as a result of our investments in adding additional engineering talent as well as the transformation of the engineering team to a domain driven engineering model. For Dice, in the fourth quarter, we delivered multi-location search and completed an update of its application management workflow. During the quarter and we also completed the transition of all Dice clients to talent search 4.0, completing a customer migration that started in 2018. The complete makeover of the Dice client experience over the past year, including Intel search, candidate match, paper…

Thank you, Art, and good afternoon everyone. Let me start by saying how excited I am to join the stellar management team at DHI. With our significant product innovation and improved go-to-market strategy, we are well positioned to address the large opportunity for growth ahead of us. I look forward to contributing to our success. With that, let's jump right into the quarterly results. For the fourth quarter, we reported total revenues of $37.7 million which was up 1% from the third quarter and down 1% year-over-year, when you exclude the impact of foreign exchange. Dice revenue was $23.3 million in the fourth quarter up 1% sequentially and down 3% year-over-year. We ended the fourth quarter with a little over 6,000 Dice recruitment package customers, which is down 1% sequentially and 3% year-over-year. While this overall number is down, I want to point out that almost all of those lost customers had annual recurring revenue of $5,000 or less per customer. By comparison during the quarter, we saw gains in larger contract size customers with both staffing and recruitment clients as well as commercial accounts. The growth in the number of large customers drove an increase in the average monthly revenue per recruitment package customer, which was up 1% year-over-year to $1,144 or approximately $13,700 on an annual basis. This is significant as over 90% of Dice revenue is recurring and comes from recruitment package customers. Our customer renewal rate was 70% for the fourth quarter up 3 percentage points year-over-year, and our revenue renewal rate was 81% up 2 two percentage points compared to the same period last year. Fourth quarter revenue for eFinancialCareers was $7.8 million down 4% from the third quarter and 6% year-over-year, when excluding the impact of foreign exchange rates. Prices again negatively impacted our…

Thanks Kevin. I'd like to close by once again thanking our employees around the globe for their hard work this last quarter. It is a pleasure to be part of such a great team. With that, we're happy to take your questions.

Thank you. [Operator Instructions] And the first question will come from Kara Anderson with B. Riley FBR. Please go ahead.

Sure. Hi, good afternoon or evening for you guys. I just wanted to start by asking on the outlook. So if I sort of look at your top-line performance in the fourth quarter and then think about the first and second quarters of this year versus your expectations for growth and not really until the back half. Why really the implied deceleration from 4Q, was it all EFC or is there anything else to call out there?

I would say that EFC presents the biggest headwind and challenge for us right now Kara. And specifically, as I explained in the past, we viewed EFC's APAC region to be a significant engine for growth at the beginning of 2019 that decelerated quite a bit as the year went forward and they experienced the protests and now the coronavirus. But I'd say it's fair to say that our biggest headwind is with EFC and the APAC region. As everybody is well aware there's also still a concern about what happens next with Brexit, but I'd say that we've seen a good amount of bookings activity in the back half of December, even post the Tory's successful election there. So we feel more confident about that particular region.

I guess if I could just follow up on that. Are you expecting any kind of change then from Dice, from the fourth quarter into the first half of the year?

We're not forecasting any specific up tick in Dices performance per se in this first quarter. We looked at this as a quarter where we've tripled the size of the commercial accounts team starting at the beginning of the quarter, but they're still on a ramp to essentially become effective in attaining the right kind of performance to their quota plan. So again, I'd say there was no major change expected for Dice.

You kind of led me right into my next question. I just wanted you to go over the size of the commercial team, how that's tracking versus your initial expectation. Maybe my recollection is off, but seems like maybe you're growing more than you were anticipating. Maybe if you could just go over that for me, that'd be helpful.

Sure. And from a historical perspective that might be useful to take a look at 2019. We initiated this team in February and we effectively went through a couple of changes of leadership over the course of the year. And we also were more segmented where now we have a commercial accounts team that focuses on new business gaining new customer relationships where and one that effectively focuses on renewal. So, we put the expansion of that team on hold in the third quarter as we were looking for a Chief Revenue Officer. I'm a big believer that the new Chief Revenue Officer has the right to format the team, the way that he believes it should be formatted and for the future health of the organization. And so Arie Kanofsky came on board in October, so roughly the beginning of the fourth quarter, he affirmed the strategy of expanding that team. We focused on the new business component of that team, roughly tripling it to around, I'd say 20 individual performers. And so that's again, only one part of the team because the team also consists of folks that focus on renewing existing relationships and then also part of the team that focuses on client success, but it's the part of the team that has the long-term revenue impact. They're effectively looking at this Burning Glass list of targets, looking at those particular customers that have the largest need. They have the largest number of open tech job postings and then approaching them saying that we have the right solution to find those individual technologists. And so again, we would expect that that team over the course of 2020, as they're ramping their training, as they're ramping their effectiveness, that they returned Dice to grow faster.

What is the typical ramp up period? I guess in one or maybe years forward?

Well, we look at it as three to four quarters. That's the general timeframe.

Okay. And then the last question for me and I'll let someone else take some questions. On Clearancejobs, I think last year you were piloting about six government agencies. If I recall correctly, how are those going? And then if you know, if they're going well, are you close to any sort of contracts?

I would say that we actually exceeded expectations for that pilot program where we have over a dozen pilots. As you probably know the government can't establish a contract when it was in continuing resolution, which luckily is no longer the case. We have a military and governmental budget. And so now we are engaging this first quarter and hope to have those pilots become long-term contracts. The contract cycle the sales cycle and the administrative logistics to get to a signed contract are obviously a little bit more lengthy when you deal with government agencies. But we think that it's fair to say that it's going to happen in the first or second quarter of this year that you're going to start to see those pilots convert.

Got it. Thank you very much.

Thank you very much, Kara. I really appreciate it. Thanks for your questions as always.

[Operator Instructions] The next question comes from Josh Vogel with Sidoti. Please go ahead.

Thank you. Hi, Art and Kevin. Good afternoon. I guess my first question is, taking into account the investments in the sales team and product engineers and I guess given the generally tight labor market, I was curious if you are having a tough time finding the right personnel, notably when we think about engineers and maybe on a bit of a tangent, what are you doing to retain your top talent?

Great questions. I can answer both those questions. I'll tell you that in the summer of 2019, our CTO, Paul Farnsworth put together a very thoughtful plan that would staff up teams based on domain expertise. And that's what we call domain driven engineering. And so each one of these subject matter teams has a requisite set of positions. They range from the tech lead to QA to senior and junior developers to a scrum master. There is a product manager that is always focused on effectively putting together the requirements that are being used by that team. So it's a big effort. We started in August and I'd say that we are two-thirds of the ways staffed for that expansion of our engineering efforts. And our HR team has done a wonderful job. Our VP of Talent and Recruiting is Jodi Addison and she made this her highest priority for the second half of 2019. And again, I look at it as a huge win that we're about two-thirds of the way through our hiring plan. Now, we do a lot to retain our talent, obviously in today's environment that is a key to success for any organization when the unemployment rate for the entire United States is at an all time low and effectively for the technology world is practically zero. So I think it comes down to having the right kind of culture, the right kind of mission, celebrating successes. All of those things are additive to making an environment that people want to grow their career in. In fact, another part of it is truly growing a career, we had over a 100 people that were promoted internally last year in a team of roughly 550. And I think people take notice and understand that there are real great opportunities here at DHI and we make those available to them. So thanks for the question Josh, because it's super important for the way that our team dynamic works.

Yes. And thank you for the insights on that. Looking at the guidance, the adjusted EBITDA guidance and thinking about the expected costs tied to these increase investments maybe this is more for Kevin. If you could just give us maybe a timeline of how this should play out as the year progresses. I mean, can we assume this is more first half driven and could we see a meaningful margin expansion back to that 20 to 23 range, we've seen as of late, especially as years -- year-over-year revenue turns positive.

Yes. And as we stated, we are making the investment in engineering resources and in sales. When you think about the nature of our business, which is effectively a recurring revenue business, the additions every month of new business are additive, but they really start having, a bigger impact as you have multiple months of growth. And so we do expect us to start returning to some of the previous EBITDA margins as we exit the year. It might be tough to say an exact quarter-by-quarter analysis, but yes, we will start to see us trending towards those numbers towards the end of 2020.

Okay, great. And shifting gears a little bit, you had a comment about the number of subscribers were down a year-over-year and sequentially, but all those that we're no longer clients. They were, I think you said had about 5,000 annual revenue. I'm just curious how many of the 6,000 clients are at that 5,000 threshold.

So let me take a crack at explaining how we look at our customer set and segment it, and then I'll hand it over to Kevin for the exact answer to that question. So big picture wise, we understand that different size customers act differently in terms of their churn characteristics. And we segment customers $5,000 from less per year 15,000 to 5,000, 30,000 to 15,000 and 30,000 and above. And we feel like those stratifications of our customer really do have different behaviors and different performance, especially when it comes to churn. We know that the 5,000 and under maybe trialing the use of the Dice platform and have only a certain set of needs and they go away because those ones are satisfied and they don't need to technologists, the next year or the next period. We also know that for example, in the staffing recruiting world, if we find a customer that is taking a $5,000 or less package that's probably a really small shop. We're talking about one or two recruiters and those customers are less stable to begin with and they might run into business problems. And that's the reason why the churn becomes evident for that particular [indiscernible]. But again, the way that I look at this is that it's healthy for us to see larger customers stay with us. It's healthier for us to engage with larger customers to begin with in the sales process. And I think that we're seeing that bear out by virtue or even just looking at the numerical average revenue per customer per month or per year. I will hand it over for additional comments from Kevin.

Sorry. Yes, Josh, I'll need to get you that exact number. I don't have that in front of me, but I will get that for you.

Okay, no worries. Art, you had commentary about candidate registrations and just other visible metrics that have been improving. I'm curious, what are you doing to drive candidate acquisition anything new or different that you weren't doing a year ago or any planned initiatives for 2020?

So for the purpose of our value proposition bringing new candidates to our site is incredibly important. I would say that it is the domain of both product and marketing, but a lot of our marketing effort is really focused on that. And we have seen a watershed and improvement in all of our marketing channels under the leadership of Michelle Marian, our Chief Marketing Officer. There are multitude of ways that we engage with candidates. One of those ways is that we have paid media, paid advertising on places like Facebook, which is pretty typical for a lot of different companies. But we also use affiliate networks. We also have search engine optimization, email campaigns a number of different channels. I would say the one channel that is really showing market improvement at the end of 2019 and moving into 2020 is what we call a CRM or our email marketing channel led by a gentleman named Tim Zee. And he has done a remarkable number of campaigns to test engagement with candidates and we've seen several of those campaigns become very successful. I think that's going to be a breakout channel for us in 2020.

All right. Thank you. I'll hop back in the queue.

Absolutely. Well, thank you very much for the questions. Josh. Nice talking to you.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to the company for any closing remarks.

Thank you, Operator. And thanks everyone for joining us today and thank you for your interest in DHI Group. To schedule a meeting with management, please email IR at dhigroupinc.com or call (212) 448-4181. Thanks for joining our call and have a great day.

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