Good afternoon everyone, and welcome to DHI Group Incorporated Third Quarter 2023 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Also note, this event is being recorded. I would now like to turn the conference over to Todd Kehrli of MKR Investor Relations. Sir, please go ahead.

Thank you, operator. Good afternoon and welcome to DHI Group's 2023 third quarter earnings conference call. With me on today's call are DHI's CEO, Art Zeile; and Julie Roby, DHI's SVP of FP&A. Before I turn the call over to Art and Julie, I would like to cover a few quick items. This afternoon, DHI issued a press release announcing its fiscal 2023 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 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 could differ from actual results include 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. With that, I'll now attend the call over to Art Zeile, CEO of DHI Group. Art?

Thank you, Todd. Good afternoon everyone, and welcome to our 2023 third quarter earnings conference call. We appreciate your time today, as we discuss our financial performance and future outlook. First, let's discuss the state of the market. There is no doubt that the ongoing uncertainty in the economy continues to suppress most tech hiring plans. As of the end of September, CompTIA’s analysis of the tech workforce indicates a net reduction of 116,000 positions year to date across the economy compared to a 335,000 expansion of tech positions for the same period in 2022. This coincided with a decline in actual tech job postings with third quarter numbers significantly lower than in the previous year and the pre-pandemic average. While this downturn in hiring continues to impact our revenue and bookings, we believe there remains a long-term secular trend for adding more tech workers in the United States. In a study focused on the impact of AI on the U.S. workforce released this past July, McKinsey Global Institute predicted that demand for STEM workers will grow 23% from the year 2022 to the year 2030. McKinsey believes tech jobs will grow at that high rate because it will be technologists who will be implementing AI for all industries and digitizing our economy. This theme is consistent with KPMG's annual CEO survey released just a few weeks ago, which confirms that 72% of U.S. CEOs say that generative AI is a top investment priority. The question is, when will we see this turnaround in hiring actually start to occur? The staffing industry analyst's most recent forecast predicts a 3% contraction in the IT segment of the staffing industry this year with a return to growth and a 5% expansion next year. We believe that as businesses have a collective sense…

Thank you, Art, and good afternoon everyone. Let me take you through our financial results for the quarter. We reported total revenue of $37.4 million, which was down 3% both on a sequential and year-over-year basis. Total bookings for the quarter were $31.2 million, down 15% year-over-year. Dice revenue was $24.8 million, which was down 6% sequentially and down 9% year-over-year. Dice's bookings were $19.1 million, down 23% year-over-year. We ended the quarter with 5752 Dice recruitment package customers, which is down 4% from last quarter, and down 10% year-over-year. Our average annual revenue per Dice recruitment package customer was flat sequentially, and up 4% year-over-year to $15,531. Approximately 90% of Dice revenue is recurring and comes from annual or multiyear contracts. For the quarter, our Dice revenue renewal rate was 78% and our retention rate was 99%. ClearanceJobs revenue was $12.7 million, up 3% sequentially and 13% year-over-year. Bookings for CJ were $12.1 million, up 5% year-over-year. We ended the third quarter with 2054 CJ recruitment package customers, which was down 1% on a sequential basis and up 1% year-over-year. Our average annual revenue per CJ's recruitment package customer was up 3% over last quarter and up 11% year-over-year to $21,422. Approximately 90% of CJ revenue is recurring and comes from annual contracts. For the quarter, both CJ's revenue renewal rate and retention rate were up sequentially. CJ's revenue renewal rate was 94% and CJ's retention rate was strong at 112%. The outstanding retention rate demonstrates the continued value CJ delivers in the recruitment of cleared professionals. Turning to operating expenses, third quarter operating expenses were down 6% to $35.2 million, when compared to $37.3 million in the year ago quarter. This quarter includes $300,000 in restructuring charges. Our third quarter operating expenses reflect a full quarter of the…

Thank you, Julie. I'd 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.

[Operator Instructions] Our first question today comes from Zach Cummins from B. Riley. Please go ahead with your question.

This is Ethan Widell calling in for Zach Cummins. Thanks for taking my question. To start course, Art, can you speak a little further to the uptick in turn with Dice the quarter and what areas are experiencing the greatest pressure there?

I would say that systemically we're seeing the same pattern of churn just at a more elevated rate. And what I have described in past quarters is that, we have examined our churn profile, are those customers that are more apt to leave us, and they are generally smaller staffing firms. And so think of these as firms that are anywhere between one and 20 employees. They are the staffing firms that are most at risk in this kind of an economic uncertain condition. And that's what we are seeing, but I would say at a higher pace.

And then, what are you hearing from tech hiring managers in current environment? And what's the focus for the new business team?

So, I would say, the interesting thing about our situation right now is that, there is a widespread acknowledgement that generative AI will fundamentally reshape business models across the United States economy. I would say, most executives understand that and are preparing for it. But right now, in the current environment, we have seen a pretty significant downshift in the number of tech job postings. We specifically look at the CompTIA monthly report that's generally published about three to four business days after the end of any particular month. And it shows, as of September, we had 184,000 tech job postings. In a normal month, let's say, in a non-aberrational year, like 2019 or pre-pandemic in general, we would on the order of 300,000 to 350,000, tech job postings. So again, the environment has slowed down dramatically in terms of demand for tech hiring right now. But there is this acknowledged longer-term hiring horizon that acknowledges that we will need more tech workers to implement generative and other AI solutions.

Thank you. And then if I can squeeze in a third one, what are the expectations for ClearanceJobs in the near-term? And do you anticipate that you will see an impact from the uncertainties surrounding a potential government shutdown?

The answer to the first part of that question is, we still think that, ClearanceJobs will definitely continue to grow, generally speaking, in the double digit revenue range. It has done that historically over the last 10 plus years. I would say that, we did see conservatism in terms of sales cycle in third quarter associated with getting closer to that government shutdown date. And we would anticipate that unless the politics can change radically, we are going to probably see the same thing happening as we get closer to the middle of November. We do know that, the fear that's there for the military contractors that they get slow paid or delayed paid, they will ultimately be caught up. But the point of the matter is, it does affect their cash flow pretty dramatically, if we do go into a government shutdown. The other thing that happens is that, contract officers, and there are literally tens of thousands of contract officers that are managing contracts for the government, and especially establishing new contracts for the government, they are all furloughed. So there you can't have any amendments to existing contracts and you can't essentially launch new projects, if the government goes into a shutdown. That's the other impairment that we would see in that scenario.

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

Yes. I wanted to focus on the bookings of the Dice of 23% in Q3, and then CJ, you characterized the 5% growth as slightly disappointing. I received a recall of this Q4 of 2022 when the economic headwinds sort of caught up to DHI and I was curious to know what your expectation, uh, just on a year over year bookings growth rate or contraction rate, what's your expectation for Dice and CJ Q4 versus Q3?

Well, I'd say that we continue to see a negative bookings rate, meaning that we're going to see a decline for Dice. And the bookings are of course a combination of renewal rates for existing customer contracts, but also new business activity. I think that renewal rates are going to still hover around the 80% mark for our Dice customers. And that's because again we're still shaking out some of those smaller staffing recruiting firms from our customer base. And we are still seeing an impairment specifically to commercial accounts, new business bookings. We are seeing an improvement, you'd say slightly over the course of time with a staffing recruiting new business team. So I hope I give you at least a qualitative sense that we do expect that there is going to be a decline in bookings from Q4 of last year to Q4 of this year for Dice. And the mechanism behind that CJ is different. I still think that the jury is out, just as I described in my answer to Ethan, the last caller who -- and we talked about the fact that there is a looming government shutdown anytime that happens. And specifically we saw, at least in the last month, that it happened pretty dramatically where contractor activity slowed down because the contractors are waiting to see what scenario exists whether or not they're going to get paid, whether or not there's going to be a government shutdown or an extended one. So, I still believe that CJ is such absolutely vital tool to find cleared professionals that even those folks that are continuing forward with their existing platforms. They need clearance jobs, but the new business bookings are affected when there is the prospect of a government shutdown.

You kind of got me halfway there on the bookings trend. I guess maybe it's something that you're not comfortable putting too fine a point on, but I guess, I was hoping to is there any sense of a troughing that things will -- we don't expect it to get worse from in Q4 versus Q3?

I would say qualitatively, we saw a little bit worse bookings performance in Q3 than Q2, but I feel like we're going through the trough right now. I think that we're not seeing a pickup in activity, but we're not seeing a significant decrease in activity. And the reason why I talked about Q4 of last year versus Q4 of this year is of course Q4 is our biggest or one of the two biggest quarters for our renewable bookings. Most of our customers have termination dates in their contracts of either December or January, and that's why I wanted to bring out the point of seasonality.

I guess the ARPU on the contracts Dice up about 4% and then CJ up about 11%. How much of that is kind of seat driven versus price increase?

I would say that that is probably price increase almost entirely. But I would also say that, we are currently shaking the tree pretty hard in these less-stable customers, ones that are less than $10,000 in annual spend are the ones that are dropping out of our customer count. And so that also makes the difference in terms of how mechanically we get to that average ARPU figure.

Okay. And then, for the 27% of Dice contracts that are choosing to not renew where are they going or is it just fewer seats? What's the alternative for them if they don't renew it?

What we have found, again, this is the cohort of customers that are effectively not renewing their Dice licenses and they are very, very small firms. So, they have generally either gone out of business or they have suspended a lot of their expense structure as they are waiting for the demand environment to improve. They are not getting the orders on their side to essentially staff certain customers that they have had in the past.

Got you. Okay. And then lastly, it's good work on the 25% adjusted EBITDA margin. You have also given an outlook for 25% on the adjusted EBITDA margin for Q4. Does that imply any further restructuring or cuts or is kind of the cost structure relatively stable now?

The cost structure is stable at this point in time. We do have the ability to make a marketing, digital marketing campaign changes almost literally daily. And so, we have the ability to use that as a significant lever. But I would say that in general our expense structure is where we want it to be from here moving forward.

Got it. Well congrats on getting your CFO candidate. I look forward to connecting with her when she starts in December. Thanks for taking my question.

Absolutely Eric, thank you.

And our next question comes from Kevin Liu from K. Liu & Company. Please go ahead with your question.

Hi. Good afternoon. I wanted to start with the Dice bookings growth trajectory here. You talked about kind of the top-up impact over the past two quarters here. Any way you can quantify, how big of a drag that's been, on the bookings? And then as you move into kind of your stronger and more typical renewal periods, wondering if that impact just kind of naturally abates since clients generally wouldn't be topping up then?

I think that's a great question. And I am going to ask Julie to respond to that. She is the one that's been hit deep and looking at these trends. So, Julie, do you want to speak to that?

Yes. So, the topping up of our customers probably impacted our renewal rates by a few percentage points each quarter. So for our larger staffing and recruiting firm, that was a drag on our overall renewal rate. But again, as Art was talking to before, it was -- our renewal rate was also impacted by the smaller customers that were returning.

And just as it relates to kind of a Q4 and Q1 renewal periods, do you guys typically have that top-up impact to work through still, or since those are more usual time frames, does that kind of headwind go away?

Yes. I would say that that headwind goes away. We saw more of the customers topping up in the second and third quarter of last year. And so, that is moving behind us as we go forward and our customers have normalized their contracts to the demand that we are seeing today.

Great. That's helpful. And then just for both Dice and ClearanceJobs. As you look at kind of the top of the funnel and you are marking qualified leads, have those continued to grow or have you seen any sort of declines there as well just as you pair back on some of your marketing investments?

I would say that, we've seen a pretty steady state of marketing qualified leads, although, coincident with the lower demand for tech job postings in general, I'd say that we've seen less commercial accounts, marketing qualified leads as part of the mix. So when we say marketing qualified leads, we're talking about all the leads that come in that service, both the Dice new business teams, the commercial accounts, and the staffing recruiting team. And proportionally we've seen more staff and recruiting leads come in, but the same total amount. And I think that that is consistent with the view that a lot of companies have decided to use staffing recruiting more frequently this year because it means less risk to them. It means that a person's not on their payroll directly.

Art you mentioned kind of the see a forecast for kind of a return to positive growth in IT staffing next year. As you kind of look out, and I know it's still early here how are you guys thinking about that forecast and whether you would want to start to renew some of the investments either in the commercial account team or elsewhere in the business?

Yes, I think, right now, obviously, we don't have the crystal ball like any more so than anybody else does. But I would say it is positive to see that they have adjusted their forecast upward for 2023 -- I'm sorry, 2024. Now with that said, a really big growth driver for us last year was our commercial accounts team, and I view that as a big driver for growth for the future in general. So, I think we come back to what I would consider to be normal economic growth rate for Dice once we see that commercial accounts interest in demand improve.

And ladies and gentlemen, with that, we'll be ended today's question and answer session. I'd like to turn the floor back over to management for any closing remarks.

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

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