Good afternoon everyone and welcome to the DHI Group Incorporated third quarter 2020 financial results conference call. All participants will be in a listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please also note, today's event is being recorded. At this time I would like to turn the conference call over to Todd Kehrli with MKR Investor Relations. Sir, please go ahead.

Thank you operator. Good afternoon and welcome to DHI Group's fiscal 2020 third quarter financial results conference call. With me on today's call are DHI's CEO, Art Zeile and Chief Financial Officer, Kevin Bostick. Before I turn the call over to Art, I would like to cover a few quick items. This afternoon, DHI issued a press release announcing its fiscal 2020 third quarter 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, the adverse impact and uncertainties surrounding the COVID-19 pandemic 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 EBITDA, adjusted EBITDA margin and net debt 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 press release and on our website at dhigroupinc.com in the Investor Relations section. I will now turn the call over to Art Zeile, CEO of DHI Group.

Thank you Todd. Good afternoon everyone and welcome to our fiscal 2020 third quarter earnings conference call. As always, we appreciate your interest in DHI. Let me first start with quick update on our operation status as it relates to the COVID-19 pandemic. Our foremost concern at DHI is to ensure the health and safety of our DHI community. As such, the majority of our employees continued to work from home during the quarter, using the best possible remote communication and collaboration tools. And our team members, including sales and support, marketing and product development continued to be highly effective. We currently have several offices open, though we have made the return to office optional for all our employees. We are looking forward to having more of our employees back in the office when it's safe. But rest assured, we are taking significant precautions to make sure we maintain the safety of our employees, whether they are in the office or working from home. Now let's jump into a review of the quarter. While the pandemic continues to challenge the way we all live and work, we actually saw job postings stabilize during the summer, although they were lower in total than the year before. The sentiment is that many companies paused their hiring during this time as they reformulated their hiring plans based on their view of the economic recovery to come. However, in September, we saw the sentiment change for the better, as evidenced by a notable uptick in job posting as well as an increase in our bookings. Based on our Burning Glass feed, there are over 2,200 companies that have more than 20 open tech job postings right now. Companies like Amazon, Microsoft and J.P. Morgan Chase have over 1,000 active tech jobs posted today. Both…

Thank you Art and good afternoon everyone. I will start by going through the financial results, then add a few comments about the business. For the third quarter, we reported total revenues of $33.3 million, which was down 2% from the second quarter and 11% year-over-year. Dice revenue was $19.8 million in the third quarter, down 3% sequentially and 13% year-over-year. We ended the third quarter with 5,300 Dice recruitment package customers, which is down 3% sequentially and 13% year-over-year. Our average monthly revenue per Dice recruitment package customer was down 1% versus the year ago quarter to $1,122 or $13,464 on an annual basis. Over 90% of our Dice revenue is recurring and comes from recruitment package customers. Our Dice customer renewal rate was 63% for the third quarter, up from 57% last quarter, but down three percentage points year-over-year. Our Dice revenue renewal rate was 66%, up five percentage points from last quarter, but down 10 percentage points when compared to the same period last year. While we did see lower in-period renewal rates, that is customers renewing prior to or at contract termination, we are maintaining an ongoing dialog with these non-renewal customers with the expectation that they will re-sign when there is further recovery in the economy. As we mentioned last quarter, we hired a new leader for our client success organization, who has implemented new processes around onboarding and ongoing touch points that we believe should have a positive impact on both customer and revenue renewal rates. As we look at Dice, our strategy continues to be on larger customer relationships. We believe this will put us in the best position for stability and growth. Currently, approximately 13% of our customers generate 50% of our recruitment package revenue, though no one customer makes up 1%…

Thanks Kevin. I would like to close by once again thanking all 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 are happy to take your questions.

[Operator Instructions]. And our first question today comes from Aman Gulani from B. Riley Securities. Please go ahead with your question.

Hi guys. Thanks for taking my question. I guess the first question, given that eFC continues to have declining revenues with fairly low visibility, have you considered potentially spinning off or divesting that piece of the business?

Aman, I appreciate the question. And eFC is certainly our most challenged business and continues to face those significant headwinds that we indicated and will for the foreseeable future. There is no question that the banking industry is going to be in a longer term recession than many of the other industry sectors across the globe. When we compare eFC to CJ which is continuing to grow really nicely as well as Dice which we expect to benefit from expansion of tech job in the United States over the next five years, I think it is fair to say that any continued poor performance by eFC would offset the positive performance of CJ and Dice and mask their growth effectively. So we are definitely looking closely at the eFC business and evaluating all our options, quite frankly. So I would say the answer is, yes.

Got it. Thank you. And maybe bit a greater clarity, how do you expect the recovery of two of those in renewals and bookings? And when do you think DHI can begin to just get back a sequential growth.

So each team within the individual brands have its own dynamics. I think we saw in October more so than the earlier part of the summer that we are growing our renewal rates from a revenue perspective. So we get revenue and renewal counts themselves. If we think about the business broadly speaking, especially for Dice, the largest brand, we have a large amount of our revenue tied to staffing, recruiting and consulting agencies. I think that they feel better about their future. We are seeing those renewal rates improve. We have seen many customers that paused on their subscriptions with Dice come back especially at the end of the quarter. And the new business, I would say, is the bigger challenge across all of our brands. And that makes sense because it's a new relationship, the client have to be pretty firm about their hiring plans for the future. And this is still a period of time which is uncertain for many industries about their hiring plans. But in general, we saw a better end of the quarter than the beginning of the quarter and we feel more confident moving into 2021. Obviously, when I talk about these kind of figures, I am really talking about bookings. And if we both a dollar of revenue today that has to be divided by 12 into the next subsequent 12-month period. So it doesn’t reflect itself in revenue immediately, but over the long run. So this firming up of bookings, we expect to essentially allow us to have better revenues towards the end of 2021. And that's how we would fundamentally look at the situation as it's evolving today.

Got it. Okay. And then just last question from me. Can you just talk about some of the trends you seeing in renewal rates in October and start of November relative to what you saw in the third quarter?

Yes. I would say that in terms of renewal rates themselves, October feels like it's another month that is softer than, well, I shouldn’t say, it's a little bit softer than September, but it's still in the same trajectory, meaning that we feel like we are moving towards that checkmark shaped recovery in bookings. And there are certain teams that are just doing fantastic. I mentioned them in my portion of the earnings call. We have seen the CJ new business teams exceed their pre-pandemic levels bookings. And we have seen the account management team do the same. The staffing and recruiting and consulting new business team has also exceeded what they were producing at the beginning of January and February of this year. So there are certain teams that appear to be acting as a possible engine for growth. That's the reason why we transferred sales reps to those teams with the idea that we just want to facilitate more bookings wherever the bookings are taking place right now. And the great thing about Arie Kanofsky's leadership of our sales program is that we can be that nimble and take advantage of the trends that we are seeing in real-time. Another important thing that we are doing as part of our strategy is using the Burning Glass feed that shows how many tech postings are open each night across the United States. And we are being very targeted towards going after those particular clients that we don't have today that have a large number of postings and trying to sell the value proposition there.

Got it. Thank you. I will pass it on.

Thank you very much Aman. Appreciate the questions.

Our next question comes from Josh Vogel from Sidoti & Co. Please go ahead with your question.

Thanks. Good evening guys. Hope you are doing well.

Thanks Josh.

My first question is, second quarter in a row talking about how you did see some clients pause subscriptions, but starting to come back or you are hoping for a win back there. So maybe not so much anyone who paused subscriptions that came up in Q3, but of those that were paused in Q2, is that where you are starting to see some of those subscriptions come back?

Yes. And in fact, the real key to understanding the Dice business especially, is that a lot of our customers are in the staffing, recruiting and consulting category and we believe that you fundamentally can't do your job unless you have Dice as a tool if you are looking for technologists. So when they paused in Q2, they could still rely on the contacts that they had essentially harvested from Dice over the course of the previous period of time. But at a certain point, that data becomes stale. The information about the candidates becomes unusable from a practical perspective. So we believe that Q3 was an important quarter for those staffing and recruiting agencies to make a decision as to how they view their future, especially when moving into 2021 and how they would be able to essentially use Dice and other recruitment tools to ensure they are getting a flow of candidates to their clients.

I appreciate the insights. Some encouraging data points put out by some of the industry research firms like SIA. And kind of thinking about where they see the market next year and then kind of maybe building off one of the prior questions thinking about getting back to sequential growth in Dice, but is 7% growth a number that we can maybe try to benchmark you? Again, I know that subscription model is different a straight recruiting model. But what we do we deduce from taking that data point from SIA and comparing it to your business?

Yes. I think it's a good benchmark. I think that’s the right way to even frame it out. And in fact, it actually correlates to some other studies that we have seen where the online recruitment tools market as a whole historically has been growing or I should say, not historically, but it is projected to grow with a 7% CAGR over the next five years. We believe that the tech sector part of that overall market is growing faster but 7% is a pretty good benchmark. It just happens to be the same as SIA's figure for how they look at the rebound. We have a good close relationship with SIA. And we sat down with the head of research and they are not predicting the month by month progression for that. I think that’s a little bit too aggressive in today's uncertain world, but they feel confident that we will get back on track and that the IT staffing sector itself is becoming healthier than it was at the beginning of the pandemic.

All right. Great. I know that CJ is correlated to the defense budget, but I don’t have statistics from prior elections. But does whoever ends up in the White House potentially have an effect on the prospects of the ClearanceJobs, in your opinion?

I think it does over the long term and it really comes down to whether or not the President who proposes the budgets associated with all forms of the government has a real bullish view of the need for defense. And so my view, which is based on even Biden's background and experiences is that he is pro-defense. Clearly, President Trump today is pro-defense and has sequentially increased military budget, the DOD budget. I think that you can say that both of them have a common view that it's an uncertain world that we live in and we need to be strong on defense. But if one President in the future was to be less aggressive about defense posture and that represented itself in smaller defense budgets, I think that would affect CJ. There is no question about it. We are working in the reverse, in other words, if someone did lower the budget.

Yes. Okay. And just one more and I will let someone else ask some questions. The gross margin has been coming in last couple of quarters. And I was just curious, is that due to pricing and mix or is there something else going on there?

Kevin, do you want to address that?

Yes, I will. I think it really comes down to us being very cost conscious about where we spend our money. We are very careful about hiring backfills. We are very focused on making sure that our marketing spend is getting the appropriate IRR. I don't think there is any one particular area, but rather just cost containment around the entire income statement. And that mentality is across the company. So I don't think it is any one particular initiative or one particular line item, just us being cost conscious across the whole business. And clearly, we are seeing a little bit of benefit when it comes to digital advertising rates which have come down. It's a little bit of a less competitive environment. So that’s helpful as well.

Fair. Well, thanks for taking my questions guys.

Thank you Josh. I appreciate it.

And ladies and gentlemen, at this time, we will conclude today's question-and-answer session. I would like to turn the conference call back over to Art Zeile for any closing remarks.

Thanks everyone for your interest in DHI Group and thanks for joining us on our call today and have yourself a great day.

Ladies and gentlemen, with that, we will conclude today's conference call. We thank you for attending. You may now disconnect your lines.