Good day, and welcome to the DHI Group, Inc. Third Quarter 2022 Financial Results 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 Todd Kehrli of MKR Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and welcome to DHI Group's fiscal 2022 third quarter earnings 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'd like to cover a few quick items. This afternoon, DHI issued a press release announcing its fiscal 2022 third quarter financial results. The 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 of and uncertainty surrounding COV1D-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 adjusted earnings per share 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 on our website at dhigroupinc.com in the Investor Relations section. With that, I'll now turn the call over to Art Zeile, CEO of DHI Group.

Thank you, Todd. Good afternoon, everyone, and welcome to our fiscal 2022 third quarter earnings conference call. Thank you for joining us today. First, DHI is proud to be certified by Great Place to Work, a trustworthy authority on workplace culture with a mission to help organizations become great workplaces for all. This prestigious award is based entirely on what our current employees say about their experience working at DHI. 92% of employees said DHI is a great place to work, 35 percentage points higher than the average U.S. company. The passion of our employees shows in our overall success. We are pleased to report another strong quarter with total bookings growth of 19% year-over-year and total revenue growth of 25% as more employers are using our subscription-based offering. We did this while maintaining an adjusted EBITDA margin of 21% for the quarter, making us once again a rule of 40 plus company. With the significant supply/demand gap created by the increasing demand for technologists, more employers need access to our growing community of 6 million plus tech candidates and our sophisticated tool set to find, attract, engage and hire the highest quality tech professionals. During the third quarter, U.S. employers posted over 1.1 million tech jobs, up 18% year-over-year, according to information technology trade group, CompTIA. Even in this current macro environment, we continue to see strong demand for technologists. In fact, the unemployment rate for technologists remains near an all-time low of 2.1%. Open tech job postings are about 2 times the number of tech workers looking for employment. Our two subscription-based offerings, Dice and ClearanceJobs are both tech-focused career marketplaces that attract the highest quality tech professionals and enable employers to find and engage these skilled candidates as they look to fill these hundreds of thousands of…

Thank you, Art, and good afternoon, everyone. Let me go into a bit more detail on our third quarter financial results. We reported total revenue of $38.5 million, which was up 4% sequentially and 25% year-over-year. Total bookings for the quarter were $36.5 million, up 19% year-over-year. Dice revenue was $27.3 million, which was up 2% on a sequential basis and up 23% year-over-year. Dice bookings were $25 million, up 17% year-over-year. We ended the quarter with 6,409 Dice recruitment package customers, which is up slightly from last quarter and up 11% year-over-year. Our average annual revenue for Dice recruitment package customer was up 4% sequentially and 9% year-over-year to $14,868. Approximately 85% of Dice revenue is recurring and comes from annual or multiyear contracts. Our Dice revenue renewal and retention rates remained strong during the quarter, with the revenue renewal rate at 98% and the retention rate at 110%. These metrics continue to demonstrate the value of the Dice products in recruiting technology professionals. ClearanceJobs revenue was $11.2 million, up 9% sequentially and 32% year-over-year. Bookings for CJ were $11.5 million, up 23% year-over-year. We ended the third quarter with 2,030 CJ recruitment package customers, which is up 3% from the second quarter and 12% year-over-year. Our average annual revenue per CJ recruitment package customer was up 3% over last quarter and up 13% year-over-year to $19,308. Approximately 90% of CJ revenue is recurring and comes from annual contracts. For the quarter, our CJ revenue renewal rate was 97%, and CJ's retention rate was 110%. These strong renewal rates demonstrate the continued value CJ delivers in the recruitment of cleared professionals. Now let's turn to operating expenses. Third quarter operating expenses were $37.3 million compared to $33 million in the year ago quarter. We are continuing to grow our…

Thank you, Kevin. I'd like to close by once again thanking all our employees for their hard work this quarter. Your hard work every day is paying off. It is a pleasure to be part of such a great team. With that, we're happy to take your questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Zach Cummins with B. Riley Securities. Please go ahead.

Yes. Hi, good afternoon, Art and Kevin, congrats again on another solid quarter. And thanks for taking my questions. Art, just starting off pretty noticeable shift in average revenue per recruitment package in Dice. It sounds like you've been proactively shifting upmarket to customers that are generating at least $10,000 in annual contract value? Is that something that we should expect to continue going forward? Or how should we think about the balance between continued customer growth and expansion of that average recruitment package to drive growth in Dice moving forward?

I think it's a combination of both. I mean, we would love to have additional customers, clearly, but we want to make sure that as we move forward in kind of an uncertain time that we're getting strong customers right from the get-go. What we found is that our attrition is associated with our smaller customers. So we certainly don't want to invite future attrition. And so we really, kind of, reinforce this idea that we should make sure that those customers that we're prospecting are very strong. And just the size of the contract itself is at least one indicator of that. We do have an ideal customer profile that indicates the size of the customer in terms of the number of employees, the number of positions that they're hiring for currently. But as a proxy, that $10,000 mark seems to be a safety zone for us.

Understood. And nice to hear the strong momentum that you're seeing in your corporate branding product. Can you give us a sense of the penetration rate that you've had with that product thus far? And kind of what is the sense of the available run rate for growth there within just the existing base?

I'd say it's small in terms of the penetration rate today. I don't have the exact figures, but I would surmise it that's less than 10%. We haven't been overly selling it, because we're waiting for ClearanceJobs to essentially deliver their new company page literally within weeks, and then Dice doing the same thing in the first half of next year. So what we're seeing is that there is this really strong interest, as shown by that increase in year-over-year demand. But I'd say the real campaigns to sell CJ and Dice branding products are to come. CJ, by the end of this year; Dice, first half of next year.

Understood. And final question for me is just really around the implied 4Q guidance. I think you beat the midpoint of the Q3 guidance by about $1 million, but raised the full-year by about $500,000. Just curious of some of the dynamics that you're factoring in when setting Q4 expectations.

Sure. And this is Kevin, Zach. As you know, as we enter any quarter, we are close to high-80s percent of our revenue is already known the way these contracts are booked and then the value of the contract is amortized. For the balance of the revenue, we actually spend a fair bit of time looking at the type of contracts that we have, the amortization of the expected contracts to sign, close rates, all of that. So all of that factors into the guidance that we provide. The KPIs that we're seeing in the business are relatively consistent with what we've seen previously. So all of those things go into setting up the guidance for any quarter. And then also, in this case, for 2022, we had provided full-year guidance as well.

Understood. And that’s helpful. Well, thanks again for taking my questions and congrats again on the strong results.

Thank you very much, Zach. Appreciate it.

Our next question comes from Eric Martinuzzi with Lake Street. Please go ahead.

Yes, my congratulations on the quarter as well and also on the Great Place to Work recognition that is definitely differentiated versus the average. Curious to know -- I had a question regarding the average annual revenue per recruitment package customer. Wondering how much is due to seat increase versus price increase on that growth on the Dice side?

Yes. It is mostly -- it is larger customer contracts, and I would say it's weighted more towards seat increases, Eric. And as Art mentioned, we are focused on larger-sized deals. So that's effectively what we're seeing is that we're selling more seats relative to the smaller sized deals.

Okay. All right. And then as we look out to the pipeline that you've got to work and I'm specifically referring to the commercial side on Dice, what do the leads look like now versus, say, 90-days ago?

We're seeing a consistent pipeline. That's a very astute and very appropriate question. Obviously, the pipeline being a leading indicator of future bookings success, but we've seen a pattern that is very consistent with what we saw 90 days ago. So we still see very encouraging pipeline and bookings trends.

Okay. And then just if I could go a layer deeper on the customer size, in the verticals that you're working? Were there any just on the Q3 backward looking, any cracks appearing particular verticals? Because obviously, the headlines we see is big tech is either freezing or contracting in their technologist headcount. And I'm just wondering if you're seeing maybe on a vertical basis, some signs of weakness in the pipeline.

So I'll tell you that, as we indicated at our Investor Day presentation, we track a number of verticals on the order of like 15 different verticals. And surprisingly enough, the software vertical is actually the fourth largest vertical at least it was in that time frame and remains so. I would say that we are not seeing the same, kind of, headline news associated with these larger tech companies, you can still go to Meta's career site, as well as Facebook, Amazon, they're all hiring technologists in large numbers like thousands or tens of thousands. Very fortunately, we have not focused on the smaller seed stage, venture stage companies that are in tech. In fact, there was a recent article by The New York Times that stated that there was a 53% drop in venture funding for Q3 this year versus last year. That's a space that we have not really played in, mostly because it doesn't meet our ideal customer profile, which demands a certain size of company, a certain size of number of hires in the next year and because those firms are generally more frugal in the way that they go to market to try to attract talent. So again, even across this big tech segment, we're not seeing the trends that are playing out in the news cycle, and we have never really focused on the smaller companies that are in tech. So I guess that's a long way of saying we haven't seen any major cracks. I mean, I would imagine if we were selling to a mortgage-based business at the beginning of this year, we're not selling to mortgage-based businesses right now as one example, but we haven't tracked at that level. It's not a very large vertical for us, real estate in general.

Understand. Thanks for taking my questions.

Absolutely, Eric. Appreciate it.

Our next question comes from Gary Prestopino with Barrington Research. Please go ahead.

Hi, good afternoon, Art and Kevin.

Hi, Gary.

Most questions have been answered. A really good quarter here. But in your initial dialogue, you said tech posting job postings were 1.1 million in Q3. And you gave some kind of an increase year-over-year. I didn't get that increase down. Do you have that handy?

Yes. That was an 18% increase, and it was tied to these press releases that are issued by CompTIA, which is a tech industry association. They're issued every third or fourth day of the following month. And that tracks almost exactly to the increase that we saw year-over-year at Dice. We saw a 19% increase, CompTIA saw an 18% increase. And we just used the CompTIA figures, because they're universal. They're based on BLS statistics that are published. So we feel like those are a little bit more of an independent view than our own platform. But our own platform is showing the exact same trend.

Okay. And then referring to the other question with the headlines here about job cuts at some of these major firms like Twitter, Facebook or Meta, whatever they call it now. I mean, are you -- you're not seeing the demand for technologists slow there. So are we to assume that a lot of these cutbacks would be nontechnology-related personnel?

I personally think that they're situation specific. In fact, we've been answering questions about this literally since the beginning of the first quarter of this year. So we've answered, hey, do you have Robin Hood as a customer? Do you have Rocket Mortgage as a customer? Do you have Meta as a customer? We do have Meta as a customer. But we aren't seeing the slowdown that's indicated in the news headlines. I do believe that many of those individual companies have their own situation-specific reasons for either having a layoff or a pause or a slowdown in hiring, all of which those scenarios affect us differently if they're customers.

Okay. So then another scenario I don't want to know is your sales force going out and selling or maintaining existing accounts, are they finding that it's getting through the industry that Dice and ClearanceJobs are really a must have and one of the reasons why as resources become less and less if they do become less and less for attracting candidates in terms of manpower, because we're going into a recession or whatever, that these entities are really looking to you to more so fill that need for attracting clients or members for their job postings.

So it's interesting you used the words must have that for 2023, our strategic initiative, which is to establish ourselves as the must have tool for our customers. And so I would say that our job isn't done. As the job differs based on whether it's ClearanceJobs or Dice, I think we're spending more time making that pitch on Dice that we're the unique spot for finding technology talent across all verticals in the United States. Just to let you know, ClearanceJobs has established a track record over the last 20-years of being completely delinked from the economy. And so its success is correlated to the defense budget in the United States. That's why I mentioned that we're on the precipice of hopefully having a defense budget approved by Congress that is a very large increase from a historical perspective, obviously, because of the war in Ukraine, but also the idea that we have a lot [Technical Difficulty]. Thank you very much really appreciate. Take care.

Our next question comes from Kevin Liu with K. Liu & Company LLC. Please go ahead.

Hi, good afternoon, guys. I know this has been, kind of, talked about a number of different ways in terms of potential slowdown in the economy or what sort of impact that has. So let me [indiscernible] a different angle, maybe just get your sense on sales cycles and whether they're still pretty consistent with what you guys saw earlier in the year or if there's any sort of change in decision-making? And then also just kind of the appetite for things like multiyear contracts or some of the built-in price increases you guys have within your contracts?

Those are excellent questions. And I would say that first and foremost, we've seen a little bit of a sales cycle increase over the course of the year. And when I say a little bit, it's a matter of like days. So we're not really worried about that signal at this point in time. I mean if we had a doubling or a 50% increase in our sales cycle, we would be worried. But right now, we're seeing almost a minor increase, but we're still tracking it religiously every single week, every single month. As it pertains to multiyear contracts, we have not seen any change in the pattern. We're still able to more or less convince our customers, the ones that are willing to engage in the discussion that multiyear can be to their benefit as well in terms of locking in price increases right now as opposed to experiencing larger-than-expected price increases in future years.

Great. And then maybe just with respect to some of the kind of less recurring sources. I talked in your script about being able to attach and seeing good strength in things like sourcing and virtual fairs and the like. What sort of attach rate you guys have on your subscription base today? And what do you think that can go, especially once you start to sell the new corporate branding offering more aggressively?

Sure. I'll take that, Kevin. Right now, we are seeing what I would say is a somewhat small attachment rate for both virtual career events and sourcing services. Ultimately, it's not so much the attach rate on the front-end, but it's after people see how the product is used, notably for sourcing, we then try to sell them our products so that they can use it on their own. I would say virtual career events have a higher attach rate to products, because it is another way for them to attract candidates. So it goes hand-in-hand with the platform. Branding right now, also to Art's point earlier, it does not have a very high attach rate, but that is something that we're focusing on next year and actually do want to sell that with the platform products with the annual recruitment package, so that those are actually purchased together. And we expect a much higher attachment rate, as Art mentioned. Right now, it's being launched for CJ and kind of the Q1, Q2 of next year for Dice.

Got it. And just lastly, it seems like there's still, kind of, a willingness to invest in the business here. In terms of kind of the increases in expenses going forward, should we expect a similar pacing to what we've seen over the past few quarters? Or is there any reason that would either accelerate or decelerate as we move into next year?

I would say for everything except sales and marketing, it will be a normal course increase year-over-year. So kind of in that 3%, 4%, 5% range, we are fully staffed across the company with the exception of sales, and it's not that we're not fully staffed in sales. To the point Art makes, we continue to add sales headcount. And so I would expect those costs will continue to go up on a dollar basis over the course of 2023. The marketing spend then will be correlated to the number of salespeople we have, because that is really driven by the number of new business salespeople and the support we provide them through the form of MQLs. So I would say for product and IT and G&A, it's just going to be ordinary course increases. Sales and marketing will increase somewhat in line with bookings and then our cost of revenue is probably somewhere in between, because there is a component there that our cost of revenue does increase, although not linearly with the increase in bookings for our business.

Great. That’s very helpful. I appreciate you taking the questions and congrats as well on the strong growth quarter.

Really appreciate it, Kevin. Thank you.

This concludes our question-and-answer session. I would now like to turn the call back over to management for any closing remarks.

Thank you so much. Before we wrap up, I want to let you all know that DHI management will be attending the Benchmark Conference on December 1st in New York City. We hope to see some of you at that conference. And thank you very much for your interest in DHI Group today. Hope you have a wonderful day and week to come.

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