The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this report. See also our consolidated financial statements and the notes thereto and the section entitled "Note Concerning Forward-Looking Statements" in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . Information contained herein contains forward-looking statements. You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include, without limitation, information concerning our possible or assumed future results of operations. These statements often include words such as "may," "will," "should," "believe," "expect," "anticipate," "intend," "plan," "estimate" or similar expressions. These statements are based on assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, our ability to execute our tech-focused strategy, competition from existing and future competitors in the highly competitive markets in which we operate, failure to adapt our business model to keep pace with rapid changes in the recruiting and career services business, failure to maintain and develop our reputation and brand recognition, failure to increase or maintain the number of customers who purchase recruitment packages, cyclicality or downturns in the economy or industries we serve, the impact of the coronavirus COVID-19 outbreak on our operations and financial results, geopolitical events such as civil unrest inHong Kong and uncertainty in respect of the regulation of data protection and data privacy, failure to attract qualified professionals to our websites or grow the number of qualified professionals who use our websites, failure to successfully identify or integrate acquisitions,U.S. and foreign government regulation of the Internet and taxation, our ability to borrow funds under our 19 -------------------------------------------------------------------------------- Table of Contents revolving credit facility or refinance our indebtedness and restrictions on our current and future operations under such indebtedness. These factors and others are discussed in more detail below and in our filings with theSecurities and Exchange Commission , including our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 , under the headings "Risk Factors," "Forward-Looking Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Information contained herein contains certain non-GAAP financial measures. These measures are not in accordance with, or an alternative for, measures in accordance withU.S. GAAP. Such measures presented herein include adjusted earnings before interest, taxes, depreciation, amortization, non-cash stock based compensation expense, impairment, gain or loss on sale of businesses, and other non-recurring income or expense ("Adjusted EBITDA") and Adjusted EBITDA Margin. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources" for definitions of these measures as well as reconciliations to the comparable GAAP measure. You should keep in mind that any forward-looking statement made by us herein, or elsewhere, speaks only as of the date on which it is made. New risks and uncertainties come up from time to time, and it is impossible to predict these events or how they may affect us. We have no obligation to update any forward-looking statements after the date hereof, except as required by federal securities laws. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy and information statements and other material information concerning us are available free of charge on the Investors page of our website at www.dhigroupinc.com. Our reports filed with theSEC are also available by visiting http://www.sec.gov.
Overview
We are a provider of software products, online tools and services that deliver career marketplaces to candidates and employers globally. DHI's three brands, Dice, ClearanceJobs and eFinancialCareers, enable recruiters and hiring managers to efficiently search, match and connect with highly skilled technologists in specialized fields, particularly technology, active government security clearance, and financial services. Professionals find ideal employment opportunities, relevant job advice and personalized data that help manage their technologist lives. In online recruitment, we specialize in employment categories in which there has been a long-term scarcity of highly skilled, highly qualified professionals relative to market demand, specifically technologists who work in a variety of industries, have active government security clearances or a financial services background. Our websites serve as online two-sided marketplaces where employers and recruiters source and connect with prospective employees, and where technologists find relevant job opportunities, data and information to further their careers. Our websites offer job postings, news and content, career development and recruiting services tailored to the specific needs of the professional community that each website serves.
Recent Developments
InMay 2020 , the Board of Directors authorized the purchase of up to$5 million of the Company's common stock throughMay 2021 , renewing the Company's prior stock repurchase program. Under the plan, management has discretion in determining the conditions under which shares may be purchased from time to time.
Our Revenues and Expenses
We derive the majority of our revenues from customers who pay fees, either annually, quarterly or monthly, to post jobs on our websites and to access our searchable databases of resumes. Our fees vary by customer based on the number of individual users of our databases of resumes, the number and type of job postings and profile views purchased and the terms of the packages purchased. Our Company sells recruitment packages that can include access to our databases of resumes and job posting capabilities. We believe the key metrics that are material to an analysis of our businesses are our total number of Dice recruitment package customers and the revenue, on average, that these customers generate. Average monthly revenue per recruitment package customer is calculated by dividing recruitment package customer revenue by the daily average count of recruitment package customers during the month, adjusted to reflect a thirty day month. We use the simple average of each month to derive the quarterly amount. AtMarch 31, 2020 and 2019, Dice had approximately 5,850 and 6,100 total recruitment package customers in theU.S. , respectively, and the average monthly revenue perU.S. recruitment package customer increased from$1,134 for the three months endedMarch 31, 2019 to$1,153 for the three months endedMarch 31, 2020 . Deferred revenue, as shown on the Condensed Consolidated Balance sheets, reflects customer billings made in advance of services being rendered. Backlog consists of deferred revenue plus customer contractual commitments not invoiced representing the value of future services to be rendered under committed contracts. We believe backlog to be an important measure of our business as it 20 -------------------------------------------------------------------------------- Table of Contents represents our ability to generate future revenue. A summary of our deferred revenue and backlog as ofMarch 31, 2020 ,December 31, 2019 , andMarch 31, 2019 are presented in the table below. Summary of Deferred Revenue and Backlog: 3/31/2020 12/31/2019 3/31/2019 Deferred Revenue$ 55,529 $ 51,626 $ 61,012 Contractual commitments not invoiced 24,869 37,093 20,238 Backlog1$ 80,398 $
88,719
(1) Backlog consists of deferred revenue plus customer contractual commitments not invoiced representing the value of future services to be rendered under committed contracts.
Deferred revenue atMarch 31, 2020 declined$5.5 million fromMarch 31, 2019 primarily due to changes in billing terms while backlog was approximately flat. Deferred revenue atMarch 31, 2020 increased$3.9 million fromDecember 31, 2019 and backlog declined$8.3 million . The deferred revenue increase and the backlog decrease fromDecember 31, 2019 are normal seasonal changes due to a higher concentration of contract renewals surrounding the end of each calendar year and the resulting usage of those contracts. The decreases were also due to the impacts of the COVID-19 pandemic. To a lesser extent, we also generate revenue from advertising on our various websites or from lead generation and marketing solutions provided to our customers. Advertisements include various forms of rich media and banner advertising, text links, sponsorships, and custom content marketing solutions. Lead generation information utilizes advertising and other methods to deliver leads to a customer. The Company continues to evolve and present new software products and features to attract and engage qualified professionals and match them with employers, such as the Dice TalentSearch powered by IntelliSearch, Dice Candidate MatchTM, MyDiceHome, Dice Salary Predictor, Dice Job Search and Job Alerts, ClearanceJobs NextGen, ClearanceJobs Pulse, ClearanceJobs BrandAmp, eFinancialCareers Messaging, Recruiter Profile, Candidate Profile and Job Search platform Our ability to grow our revenues will largely depend on our ability to grow our customer bases in the markets in which we operate by acquiring new customers while retaining a high proportion of the customers we currently serve, and to expand the breadth of services our customers purchase from us. We continue to make investments in our business and infrastructure to help us achieve our long-term growth objectives, such as the innovative products noted above. Other material factors that may affect our results of operations include our ability to attract qualified professionals that become engaged with our websites and our ability to attract customers with relevant job opportunities. The more qualified professionals that use our websites, the more attractive our websites become to employers and advertisers, which in turn makes them more likely to become our customers, resulting positively on our results of operations. If we are unable to continue to attract qualified professionals to engage with our two-sided marketplaces, our customers may no longer find our services attractive, which could have a negative impact on our results of operations. Additionally, we need to ensure that our websites remain relevant in order to attract qualified professionals to our websites and to engage them in high-value tasks, such as posting resumes and/or applying to jobs. The largest components of our expenses are personnel costs and marketing and sales expenditures. Personnel costs consist of salaries, benefits, and incentive compensation for our employees, including commissions for salespeople. Personnel costs are categorized in our statement of operations based on each employee's principal function. Marketing expenditures primarily consist of online advertising, brand promotion and lead generation to employers and job seekers.
Critical Accounting Policies
There have been no material changes to our critical accounting policies as
compared to the critical accounting policies described in our Annual Report on
Form 10-K for the fiscal year ended
21 -------------------------------------------------------------------------------- Table of Contents Three Months EndedMarch 31, 2020 Compared to the Three Months EndedMarch 31, 2019 Revenues Three Months Ended March 31, Foreign Increase Percent Exchange 2020 2019 (Decrease) Change Impact (2) (in
thousands, except percentages)
Dice (1)$ 22,485 $ 23,146 $ (661) (3) % $ - eFinancialCareers 7,248 8,192 (944) (12) % (130) ClearanceJobs 6,900 5,782 1,118 19 % - Total revenues$ 36,633 $ 37,120 $ (487) (1) %$ (130)
(1) Includes Dice
(2) Foreign exchange impact is calculated by determining the increase (decrease) in current period revenues where current period revenues are translated using prior period exchange rates.
For the three months endedMarch 31, 2020 , we experienced a decrease in revenue of$0.5 million , or 1%. Revenues for ClearanceJobs increased by$1.1 million , or 19%, as compared to the same period in 2019, primarily driven by continued high demand for professionals with government clearance and consistent product releases and enhancements driving activity on the site. eFinancialCareers revenue decreased by$0.9 million , or 12%, as compared to the same period in 2019 due to the COVID-19 pandemic, uncertainty around Brexit, political unrest inHong Kong , and the impacts of foreign currency exchange. Revenue at Dice decreased by$0.7 million , or 3%, compared to the same period in 2019 as renewal rates decreased year over year. Cost of Revenues Three Months Ended March 31, Percent 2020 2019 Increase Change (in thousands, except percentages) Cost of revenues$ 4,176 $ 3,825 $ 351 9 % Percentage of revenues 11.4 % 10.3 % Cost of revenues increased$0.4 million , or 9%, primarily driven by an increase in compensation related costs of$0.6 million and technology infrastructure costs of$0.1 million , which was partially offset by higher capitalization rates of internal development costs of$0.3 million , which decreases operating expenses. Product Development Expenses Three Months Ended March 31, Percent 2020 2019 Decrease Change (in thousands, except percentages) Product development$ 4,165 $ 4,196 $ (31) (1) % Percentage of revenues 11.4 % 11.3 % Product development expenses decreased slightly year over year, which included an increase in compensation related costs, offset by increased capitalization rates of internal development costs, which decreases operating expenses. The higher capitalization of internal development costs resulted from the Company's continued focus on the design and development of product enhancements and features for the Company's sites. 22 --------------------------------------------------------------------------------
Table of Contents Sales and Marketing Expenses Three Months Ended March 31, Percent 2020 2019 Increase Change (in thousands, except percentages) Sales and marketing$ 14,538 $ 14,279 $ 259 2 % Percentage of revenues 39.7 % 38.5 % Sales and marketing expenses increased$0.3 million , or 2% from the same period in 2019. Sales and marketing increased primarily due to an increase in compensation related costs of$1.6 million . This increase was partially offset by$0.7 million in reduced discretionary marketing expenses realized from efficiencies in vendor selection and volumes and a focus on higher yielding marketing investments and$0.5 million decrease in commissions. General and Administrative Expenses Three Months Ended March 31, Percent 2020 2019 Increase Change (in thousands, except percentages) General and administrative$ 8,551 $ 7,928 $ 623 8 % Percentage of revenues 23.3 % 21.4 % General and administrative expenses increased$0.6 million , or 8%, primarily due to an increase in compensation related costs of$0.4 million and a$0.3 million increase in non-cash stock based compensation related to the CFO transition. Depreciation Three Months Ended March 31, Percent 2020 2019 Increase Change (in thousands, except percentages) Depreciation$ 3,253 $ 2,425 $ 828 34 % Percentage of revenues 8.9 % 6.5 % Depreciation expense increased$0.8 million or 34% from the same period in 2019, in connection with higher headcount and a higher capitalization rate of internal development costs, which are reflected as purchases of fixed assets in the Consolidated Statements of Cash Flows.
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