Good afternoon, and welcome to the DHI Group First Quarter 2023 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 with MKR Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone, and welcome to DHI Group's 2023 first quarter earnings 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 2023 first 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 the federal securities laws. 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 the 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 diluted 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, a copy of which you can find on our website at dhigroupinc.com in the Investor Relations section. I'll now turn the conference over to Art Zeile, CEO of DHI Group.

Thank you, Todd. Good afternoon, everyone, and welcome to our 2023 first quarter earnings conference call. Thank you for joining us today. We are pleased to report that we delivered 12% revenue growth in the first quarter as employers continued to use our subscription-based offering to find, attract, engage and hire the highest quality tech professionals. There continues to be a significant demand for technologists even in this difficult environment as companies continue to invest in technology initiatives. During the first quarter, employers in the United States posted job openings for approximately 813,000 tech jobs. And the tech unemployment rate remained near all-time lows at 2.3% in April, with approximately two job openings for every one tech worker looking for employment. Our two subscription-based offerings, Dice and ClearanceJobs, are career marketplaces that are focused on serving the technology job market and feature candidate profiles that incorporate technology-specific skills. Subscribers, which are either staffing or recruiting firms, large enterprises or government agencies, use our proprietary tech skills mapping taxonomy and search algorithms to find the perfect match for their job posting from our 7.4 million technologist profiles. Now let me dig into the performance of our two brands during the first quarter. Starting with Dice. Revenue for the quarter increased 9% year-over-year. Given the uncertainty inherent in today's economy, we refined our sales strategy as we entered the new year. First, we focused on existing client relationships. Many of our clients have been with us for over 10 years. They know our value proposition. Last year, we developed a customer health score to track multiple engagement KPIs and ensure that clients are seeing the maximum value from our platforms. If a client's health score drops, we dive in to diagnose the problem. As a result, our overall Dice revenue renewal and…

Thank you, Art. And good afternoon everyone. Let me take you through our financial results for the quarter. We reported total revenue of $38.6 million, which was down 3% sequentially and up 12% year-over-year. Total bookings for the quarter were $53.6 million, up 6% year-over-year. Dice revenue was $26.9 million, which was down 4% on a sequential basis and up 9% year over year. Dice bookings were $37.6 million, up 2% year-over-year. We ended the quarter with 6,171 Dice recruitment package customers, which is down 2% from last quarter and down 1% year-over-year. Our average annual revenue per Dice recruitment package customer was up 2% sequentially and 11% year-over-year to $15,672. Approximately 85% of Dice revenue is recurring and comes from annual or multi-year contracts. Our Dice revenue renewal and retention rates remained strong during the quarter with the revenue renewal rate at 92% and the retention rate at 105%. These metrics continue to demonstrate the value of the Dice products in recruiting technology professionals. ClearanceJobs’ revenue was $11.7 million, up 1% sequentially and 21% year-over-year. Bookings for CJ were $15.9 million, up 15% year-over-year. We ended the first quarter with 2078 CJ recruitment package customers, which is up 1% from the fourth quarter and up 8% year-over-year. Our average annual revenue per CJ recruitment package customer was up 3% over last quarter and up 11% year-over-year to $20,520. Approximately 90% of CJ revenue is recurring and comes from annual contracts. For the quarter, our CJ revenue renewal rate was 95% and CJ’s retention rate was strong at 109%. These outstanding renewal rates demonstrate the continued value CJ delivers in the recruitment of cleared professionals. Turning to operating expenses first quarter operating expenses were $38 million compared to $33.7 million in the year ago quarter. This increase is due to…

Thank you, Kevin. I would like to thank all of our employees again for their hard work this past quarter. It is a pleasure to be part of such a great team. With that, we’re happy to take your questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Eric Martinuzzi with Lake Street. Please go ahead.

Hey guys. So good news on Q1 and bad news on the guide. If we go back 90 days ago when you gave the outlook for 2023, it was a challenging environment when you gave that view. So just curious to know what happened in the subsequent 90 days as far as what you heard from the sales force, maybe what you heard from the prospects because it sounds like it was a new business issue as opposed to a retention issue?

That is exactly right. Just to put the big picture out there, you nailed it, Eric. We believe that our existing customers have been renewing at the same basic range that we've seen in the last two years since we've made substantial improvements to our account management processes. So this is a phenomena that is definitely focused on new business team activity and what we're seeing is that the sales cycles continued to be lengthened. And what we did for our forecast this quarter, which is a little bit different than what we did for our last forecast that we announced was we took the low point in terms of bookings, performance for the new business teams during the quarter and we flatlined it for the remainder of the year. Our previous forecast basically had an anticipation that there would be a better environment in the back half of 2023. We've basically eliminated that, that part of the forecast. And Kevin, if you have any additional thoughts, please jump in there.

No, that's – that's completely accurate.

Okay. And then you talked about areas, healthy industries. I was kind of surprised maybe to hear that banking and finance you characterize as healthy. There's definitely at least in the regional banks the last two months have been kind of a banking crisis there. Do you feel like that the folks you're talking to in the banking finance, is this a different part of the market that you're seeing healthy banking finance as opposed to what I would've assumed was a more challenging vertical?

Actually, we have seen that the banking industry acknowledges that they're moved to online and mobile user experience is mission critical for them. And so we've seen a healthy amount of pipeline activity and actual converted clients this first quarter. We did mention one name in the banking industry, but we picked up about, I'd say 10 banks as new customers in the first quarter. And clearly it is an area that is under addressed continuously, but I think that this, there is a healthy view of what is mission critical for the long-term success of these banks that actually do survive, and we haven't picked up any regional banks, just to let you know.

Okay. And then I know you talked about sales cycles lengthening due to macroeconomic concerns, but do we have issues of sales execution or do you feel like the team's doing the best they can, given the environment?

Yes. That's always a great question as to whether or not it is execution or it is a matter of just the overall environment and so we believe that the team is executing as best as they can. I would tell you that what we've seen is that any lead that we enter into our system is now worked as hard as possible because there's almost a feeling that it's a precious – a precious commodity for us.

Okay. And then the cash outlook for – given the revised forecast for the year, we were – our cash from ops in Q1 was roughly breakeven. What are we thinking about for FY23?

Yes. So we don't provide specific guidance on components of the statement of cash flows, but we do think as a guide here that we will get down to roughly that one times leverage. So we think we'll generate enough cash to continue de-leveraging. We also will generate enough cash that we will continue to execute the buyback program, which is based on a grid, but that 8.2 million remaining is probably a pretty fair proxy of what we will spend for the balance of this year or maybe even a little bit into 2024 as it does expire in mid-February of 2024.

Got it. Okay. Well, thanks for taking my questions and good luck.

Thank you very much, Eric. Appreciate it.

Thank you.

[Operator Instructions] The next question is from Zach Cummins with B. Riley Securities. Please go ahead.

Okay. Hi Art and Kevin. Thanks for taking my questions. I mean, just starting off with Dice, nice to see the renewal rates there, but little bit of a downtick in your overall customer count. I mean, can you just speak to, is it really just more of a loss of customers at the lower end of the market and not enough to backfill that or how are you thinking about overall Dice customer count moving forward?

It is exactly that. I think that we're seeing the same phenomena that we saw during the COVID period of 2020 when the economy basically shook the tree and the smallest customers fell out, and that's what we are seeing with Dice specifically. We can – we know that the churn is associated with these accounts that are less than 10,000, so they are literally two-thirds of our average account size on Dice. These are the – these companies are generally the smaller staffing recruiting firms, but is exactly as you're describing it, Zach.

Got it. And when it comes to your more targeted approach for Dice, I mean, can you talk about the progress in terms of targeting those four verticals that are still hiring tech talent at this point?

Yes. I'll tell you that we have this data feed called Lightcast and it basically tells us on a daily, weekly, monthly basis the number of tech job openings by company in the United States. So we look at the top of the list and we know that the top of the list largely consists of those four verticals. Now what are we doing? We are tuning our marketing and our sales approach to those four verticals. As one example, we have campaigns – digital marketing campaigns that are vertical specific that are going out to our various digital channels like Google 360 and LinkedIn. We also have tailored our marketing materials so that they are vertical specific. We have our email drip campaigns now geared towards those four verticals. So we're trying to align all of our marketing activities towards these verticals to encourage those decision makers within them to essentially reach out, fill out a form on our site and that's when the sales team jumps in and starts to engage.

Understood. And then shifting over to ClearanceJobs, continue to see nice performance from that business. It sounds like just given the position of strength that you're in right now, you were able to implement additional price increases, so I'm just curious of how that could potentially impact our ARPU as we keep progressing in the coming quarters?

Well, we hope that it absolutely does improve our ARPU and just to make sure that you're aware, Zach, this is for new business activity, so we're not going back to reprice up the existing customer accounts. This is what the new business team is selling as part of the relationships that they're building. So that ARPU change will take place over the course of time, but it was intended to essentially make sure that we're getting the full value for what we've delivered in terms of capabilities on CJ.

Understood.

Yes. I was just going to add color. It's also will be embedded in our retention rates for existing customers, Zach. So we do to Art's point, we don't immediately go out to existing customers, but it becomes kind of that new pricing threshold as we renew contracts each year.

Understood. That's helpful. And then final question for me is, is just given the challenges that you're seeing on the top line, nice to see the adjusted EBITDA margin expansion that's expected here especially in the second half of the year. So can you just talk about some of the areas that maybe you're dialing back investment right now and how that's going to flow through into better margins as we exit this year?

Yes. So I'll hit on a couple points, Zach. First we're evaluating every part of third-party spend, and so whether that's different software agreements, whether that is things like T&E. We are evaluating all of that. We're looking at our marketing spend and understanding what is the appropriate spend in this environment. As an example, a significant amount of our marketing spend is actually around getting technologists onto our platform. And sorry, there's an emergency going on here in Denver with a storm. But we believe that we don't need to spend as much marketing spend to get technologists onto our platform in this environment. The other thing I would say is we do look at the people side, so we scrutinize the structure of the organization, span of control, areas like that and so we will, as people leave the company we evaluate backfills. What I would say right now we have very few open backfills because we realize we can become a better, smarter company. So we're looking across the board at all of our expenses and really targeting those that we believe will be impactful on the financial side, but not impactful on the business side.

Understood. That's helpful. Well thanks for taking my questions and best of luck with the rest of the quarter.

Really appreciate it, Zach. Take care.

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

Well, thank you Garry, and thank you all for joining us today. As always, if you have any questions about our company or would like to speak with the management team, myself and Kevin, please reach out to Todd Kehrli and he will help you arrange for a meeting. And thanks everybody for your interest in DHI Group and have a great day.

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