Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report. Certain statements we make under this Item 7 constitute “Forward-Looking Statements” under the Private Securities Litigation Reform Act of 1995, the Securities Act and the Exchange Act. See also “Note Concerning Forward-Looking Statements.”
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 applicable federal securities law.
Overview
We are a provider of software products, online tools and services that deliver career marketplaces to candidates and employers in the United States. DHI’s brands, Dice and ClearanceJobs, enable recruiters and hiring managers to efficiently search, match and connect with highly skilled technologists in specialized fields, particularly technology and active government security clearance. Professionals find ideal employment opportunities, relevant job advice and personalized data that help manage their technologists' 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 or have active government security clearances. 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.
Majority ownership and control of DHI's eFinancialCareers ("eFC") business, which provides career websites to the financial services industry and has operations in the United Kingdom, Continental Europe, Asia, the Middle East and North America, was transferred to eFC management on June 30, 2021. The Company retained a 40% common share interest. As a result, all ongoing DHI operations, which include the Dice and ClearanceJobs brands, are in the United States subsequent to June 30, 2021. As a result of the eFC separation, the eFC business was deconsolidated from the Company's consolidated financial statements as of June 30, 2021 and is reflected as a discontinued operation. During the third quarter of 2023, the Company sold a portion of its ownership in eFC reducing its total interest in eFC from 40% to 10%.
We have been in the recruiting and career development business for over 30 years. Based on our operating structure, we have identified one reportable segment, Tech-focused, which includes the Dice and ClearanceJobs businesses and corporate related costs. The Dice and ClearanceJobs businesses and corporate related costs are aggregated into the Tech-focused reportable segment primarily because the Company does not have discrete financial information for those brands or costs.
Recent Developments
Director Appointment
On July 26, 2023, Joseph Massaquoi, Jr. was appointed as a member of the Board of Directors of the Company and a member of the Audit Committee.
Chief Financial Officer Transition
On August 7, 2023, Kevin Bostick resigned from his position as the Chief Financial Officer of the Company, effective September 1, 2023. Mr. Bostick served the Company through December 31, 2023 in order to help support a transition. Accordingly, on August 28, 2023 the Board of Directors of the Company appointed Art Zeile, the Company’s current President
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and Chief Executive Officer, to also serve as Interim Chief Financial Officer while the Company searched for a permanent Chief Financial Officer.
On October 25, 2023, the Board of Directors of the Company appointed Raime Leeby Muhle as the Company’s Chief Financial Officer, effective December 4, 2023. Ms. Leeby Muhle will have overall responsibility for the Company’s financial organization, including financial planning, accounting, financial reporting, investor relations, treasury, internal audit and tax matters.
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 and ClearanceJobs recruitment package customers and the revenue, on average, that these customers generate. The tables below detail this customer data.
Recruitment Package Customers
Increase (Decrease) Percent
Change
Recruitment Package Customers: December 31, 2023 December 31, 2022
Dice 5,492 6,311 (819) (13)%
ClearanceJobs 2,055 2,064 (9) —%
Average Annual Revenue per Recruitment Package Customer (1)
FY 2023 FY 2022 Increase (Decrease) Percent
Change
Dice $ 15,631 $ 14,664 $ 967 7%
ClearanceJobs $ 21,164 $ 19,080 $ 2,084 11%
(1) Calculated by dividing recruitment package customer revenue by the daily average count of recruitment package customers during each month, adjusted to reflect a thirty day month. The simple average of each month is used to derive the amount for each period and then annualized to reflect 12 months.
Dice had 5,492 recruitment package customers as of December 31, 2023, which was a decrease of 819, or 13%, year over year while average revenue per recruitment package customer for Dice increased 7% for the year ended December 31, 2023. The decrease in recruitment package customers was due to macroeconomic conditions causing customer counts to decline while the average annual revenue per recruitment package customer increased driven by strong retention rates as our larger recurring customers continue to renew with Dice. ClearanceJobs had 2,055 recruitment package customers as of December 31, 2023 compared to 2,064 as of December 31, 2022, a less than 1% decrease, and average revenue per recruitment package customer increased 11%. The increase in average annual revenue per recruitment package customer for ClearanceJobs was due to continued high demand for professionals with government clearance and consistent product releases and enhancements driving activity on the site.
Deferred revenue, as shown on the 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 represents our ability to generate future revenue. A summary of our deferred revenue and backlog is as follows:
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Summary of Deferred Revenue and Backlog: December 31, 2023 December 31, 2022 Increase Percent Change
(in thousands, except percentages)
Deferred Revenue $ 49,971 $ 50,864 $ (893) (2) %
Contractual commitments not invoiced 58,126 66,391 (8,265) (12) %
Backlog 1
$ 108,097 $ 117,255 $ (9,158) (8) %
(1) Backlog consists of deferred revenue plus customer contractual commitments not invoiced representing the value of future services to be rendered under committed contracts.
Backlog at December 31, 2023 decreased $9.2 million from December 31, 2022. The decrease is primarily due to macroeconomic conditions causing lower demand for the Company's services.
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 develop new software products and features to attract and engage qualified professionals and match them with employers. 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 in the table below.
Product Releases
2023 2022
Dice Premium Enhanced Company Profile, Dice Remote and Company Preferences, Dice Invite to Apply, Dice Matchscore on Jobs, Dice Connections, SMS Notifications, Company Search Dice Employer Multi-Factor Authentication, Revamped technologist onboarding, New Job Page, Dice New Job Apply Flow, Dice TalentSearch Time Zone Search, Dice TalentSearch Auto Talent Alerts, Dice iOS App Messaging
ClearanceJobs Comments, ClearanceJobs Expressed Interest, ClearanceJobs Enhanced Employer Profile, ClearanceJobs Mobile App, ClearanceJobs Live Stream ClearanceJobs Company Page, ClearanceJobs Multi-Factor Authentication, ClearanceJobs Live Video, ClearanceJobs Scheduled Broadcast Messages
Other material factors that may affect our results of operations include, but are not limited to, 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, positively impacting our results of operations. If we are unable to continue to attract qualified professionals to engage with our websites, 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 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 Estimates
This discussion of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates, including our critical accounting estimates, on an ongoing basis. We based our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that we believe are reasonable. In many cases, we could reasonably have used different accounting policies and
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estimates. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Our actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting estimates affect our more significant judgments used in the preparation of our consolidated financial statements.
Goodwill
We record goodwill when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired.
We determine whether the carrying value of recorded goodwill is impaired on an annual basis or more frequently if indicators of potential impairment exist. In testing goodwill for impairment, a qualitative assessment can be performed and if it is determined that the fair value of the reporting unit is more likely than not less than the carrying amount, the impairment review process compares the fair value of the reporting unit in which the goodwill resides to the carrying value of that reporting unit. If the fair value of the reporting unit is less than its carrying amount, an impairment charge is recorded for the amount the carrying value exceeds the fair value. Our annual impairment test for goodwill is performed on October 1 of each year.
The annual impairment test for the Tech-focused reporting unit performed as of October 1, 2023 resulted in the fair value of the reporting unit being substantially in excess of the carrying value. Results for the Tech-focused reporting unit for the fourth quarter of 2023 and estimated future results as of December 31, 2023 approximate the projections used in the October 1, 2023 analysis. As a result, the Company believes it is not more likely than not that the fair value of the reporting unit is less than the carrying value as of December 31, 2023. Therefore, no quantitative impairment test was performed as of December 31, 2023. No impairment was recorded during the years ended December 31, 2023, 2022 and 2021.
The amount of goodwill as of December 31, 2023 allocated to the Tech-focused reporting unit was $128.1 million. The discount rate applied for the Tech-focused reporting unit in the October 1, 2023 analysis was 12.1%. An increase to the discount rate applied or reductions to future projected operating results could result in future impairment of the Tech-focused reporting unit’s goodwill. It is reasonably possible that changes in judgments, assumptions and estimates the Company made in assessing the fair value of goodwill could cause the Company to consider some portion or all of the goodwill of the Tech-focused reporting unit to become impaired. In addition, a future decline in the overall market conditions, political instability, and/or changes in the Company’s market share could negatively impact the estimated future cash flows and discount rates used to determine the fair value of the reporting unit and could result in an impairment charge in the foreseeable future.
The determination of whether or not goodwill has become impaired is judgmental in nature and requires the use of estimates and key assumptions, particularly assumed discount rates and projections of future operating results, such as forecasted revenues and earnings before interest, taxes, depreciation and amortization margins and capital expenditure requirements. Fair values are determined by using a combination of a discounted cash flow methodology and a market comparable method. The discounted cash flow methodology is based on projections of the amounts and timing of future revenues and cash flows, assumed discount rates and other assumptions as deemed appropriate. We consider factors such as historical performance, anticipated market conditions, operating expense trends and capital expenditure requirements. Additionally, the discounted cash flows analysis takes into consideration cash expenditures for product development, other technological updates and advancements to our websites and investments to improve our candidate databases. The market comparable method indicates the fair value of a business by comparing it to publicly traded companies in similar lines of business or to comparable transactions or assets. Considerations for factors such as size, growth, profitability, risk and return on investment are analyzed and compared to the comparable businesses and adjustments are made. A market value of invested capital of the publicly traded companies is calculated and then applied to the entity’s operating results to arrive at an estimate of value. Changes in our strategy and/or market conditions could significantly impact these judgments and require adjustments to recorded amounts of goodwill.
Indefinite-Lived Acquired Intangible Assets
The indefinite-lived acquired intangible assets include the Dice trademarks and brand name. The Dice trademark, trade name and domain name is one of the most recognized names of online technology recruiting and career development. Since Dice’s inception in 1991, the brand has been recognized as a leader in recruiting and career development services for technology and engineering professionals. Currently, the brand is synonymous with the most specialized online marketplace for industry-specific technologists. The brand has a significant presence in online recruiting and career development services. Considering the recognition and the awareness of the Dice brand in the talent acquisition and staffing services market, Dice’s long operating
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history and the intended use of the Dice brand, the remaining useful life of the Dice trademark, trade name and domain name was determined to be indefinite.
We determine whether the carrying value of our recorded indefinite-lived acquired intangible asset is impaired on an annual basis or more frequently if indicators of potential impairment exist. The impairment review process is performed on October 1 of each year and compares the fair value of the indefinite-lived acquired intangible asset to its carrying value. If the carrying value exceeds the fair value, an impairment loss is recorded. The impairment test performed as of October 1, 2023 resulted in the fair value of the Dice trademarks and brand name exceeding the carrying value by 51%. The Company's operating results attributable to the Dice trademarks and brand name for the fourth quarter of 2023 and estimated future results as of December 31, 2023 approximate the projections used in the October 1, 2023 analysis. As a result, the Company believes it is not more likely than not that the fair value of the Dice trademarks and brand name is less than the carrying value as of December 31, 2023. Therefore, no quantitative impairment test was performed as of December 31, 2023. No impairment was recorded during the years ended December 31, 2022 and 2021.
The Company’s ability to achieve the projections used in the October 1, 2023 analysis may be impacted by, among other things, competition in the technology recruiting market, challenges in developing and introducing new products and product enhancements to the market and the Company’s ability to attribute value delivered to customers. If future cash flows that are attributable to the Dice trademarks and brand name are not achieved, the Company could realize an impairment in a future period. In the October 1, 2023 analysis, the Company utilized a relief from royalty rate method to value the Dice trademarks and brand name using a royalty rate of 4.0%, which is based on comparable industry licensing agreements and the profitability attributable to the Dice trademarks and brand name, and a discount rate of 13.1%.
The determination of whether or not indefinite-lived acquired intangible assets have become impaired involves a significant level of judgment in the assumptions underlying the approach used to determine the value of the indefinite-lived acquired intangible assets. Fair values are determined using a profit allocation methodology which estimates the value of the trademark and brand name by capitalizing the profits saved because the company owns the asset. We consider factors such as historical performance, anticipated market conditions, revenues, operating expense trends and capital expenditure requirements. Changes in our strategy and/or changes in market conditions could significantly impact these judgments and require adjustments to recorded amounts of intangible assets. If projections are not achieved, the Company could realize an impairment in the foreseeable future.
Income Taxes
We utilize the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recognized for differences between the financial statement and tax bases of assets and liabilities at enacted statutory tax rates in effect for the years in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.
The calculation of our tax liabilities involves dealing with uncertainties in applying tax laws and regulations in numerous jurisdictions. Tax benefits from uncertain tax positions are recognized when it is more likely than not that the positions will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Because of the complexity of some of these uncertainties, the ultimate resolution could result in a payment that is materially different from our current estimate of the accrual for unrecognized tax benefits.
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Results of Operations
A discussion of our comparison between 2023 and 2022 is presented below. A discussion of the changes in our results of operations between the years ended December 31, 2022 and December 31, 2021 has been omitted from this Annual Report on Form 10-K but may be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 10, 2023, which is available free of charge on the SEC’s website at www.sec.gov and our corporate website (www.dhigroupinc.com).
Our historical financial information discussed in this Annual Report has been derived from the Company’s financial statements and accounting records for the years ended December 31, 2023 and 2022. Consolidated operating results in dollars and as a percent of revenue follows:
For the year ended December 31,
(in thousands) 2023 2022 2023 vs 2022
Revenues $ 151,878 $ 149,680 $ 2,198
Operating expenses:
Cost of revenues 19,787 17,607 2,180
Product development 17,777 17,674 103
Sales and marketing 57,421 59,364 (1,943)
General and administrative 31,273 34,049 (2,776)
Depreciation 16,915 17,487 (572)
Restructuring 2,417 — 2,417
Total operating expenses 145,590 146,181 (3,008)
Other operating income:
Proceeds from settlement — 2,061 (2,061)
Operating income (loss) $ 6,288 $ 5,560 $ 3,145
For the year ended December 31,
2023 2022
Revenues 100.0% 100.0%
Operating expenses:
Cost of revenues 13.0 % 11.8 %
Product development 11.7 % 11.8 %
Sales and marketing 37.8 % 39.7 %
General and administrative 20.6 % 22.7 %
Depreciation 11.1 % 11.7 %
Restructuring 1.6 % — %
Total operating expenses 95.9 % 97.7 %
Other operating income:
Proceeds from settlement — % 1.4 %
Operating income (loss) 4.1 % 3.7 %
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Comparison of Years Ended December 31, 2023 and 2022
Revenues
Year Ended December 31, Increase (Decrease) Percent
Change
2023 2022
(in thousands, except percentages)
Dice (1)
$ 102,584 $ 106,957 $ (4,373) (4.1) %
ClearanceJobs
49,294 42,723 6,571 15.4 %
Total revenues $ 151,878 $ 149,680 $ 2,198 1.5 %
(1) Includes Dice and Career Events.
We experienced an increase in revenue of $2.2 million, or 1.5%. Revenue at Dice decreased by $4.4 million, or 4.1%, compared to the same period of 2022 as bookings performance in 2022 delivered revenue for Dice early in 2023 but macroeconomic conditions throughout 2023 drove lower new business activity and lower activity with Dice's non-annual products. Revenues for ClearanceJobs increased by $6.6 million, or 15.4%, as compared to the same period of 2022, driven by continued high demand for professionals with government clearance and consistent product releases and enhancements driving activity on the site.
Cost of Revenues
Year Ended December 31, Increase Percent
Change
2023 2022
(in thousands, except percentages)
Cost of revenues $ 19,787 $ 17,607 $ 2,180 12.4 %
Percentage of revenues 13.0 % 11.8 %
Cost of revenues increased by $2.2 million, or 12.4%, driven by an increase of $1.2 million from higher compensation related costs and $1.0 million in operational costs, primarily related to the amortization of cloud computing costs.
Product Development Expenses
Year Ended December 31, Increase Percent
Change
2023 2022
(in thousands, except percentages)
Product development $ 17,777 $ 17,674 $ 103 0.6 %
Percentage of revenues 11.7 % 11.8 %
Product development expenses increased $0.1 million, or 0.6%, driven by a decrease of $1.2 million in compensation related costs, primarily related to lower headcount and bonus expense, which was offset by lower capitalized labor of $1.3 million as compared to the prior year period, which increases operating expenses.
Sales and Marketing Expenses
Year Ended December 31, Decrease Percent
Change
2023 2022
(in thousands, except percentages)
Sales and marketing $ 57,421 $ 59,364 $ (1,943) (3.3) %
Percentage of revenues 37.8 % 39.7 %
Sales and marketing expenses decreased $1.9 million, or 3.3%, from the same period in 2022. The decrease was primarily driven by a $3.0 million decrease in discretionary marketing expenses, which was partially offset by an increase of $0.8 million in operational costs, primarily discretionary marketing expenses.
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General and Administrative Expenses
Year Ended December 31, Decrease Percent
Change
2023 2022
(in thousands, except percentages)
General and administrative $ 31,273 $ 34,049 $ (2,776) (8.2) %
Percentage of revenues 20.6 % 22.7 %
General and administrative costs decreased $2.8 million or 8.2%, from prior year. The decrease was driven by a $1.9 million decrease in compensation related costs, primarily due to lower bonus expense in 2023, and a decrease of $1.0 million in other operating costs including recruiting, software, and insurance costs.
Depreciation
Year Ended December 31, Decrease Percent
Change
2023 2022
(in thousands, except percentages)
Depreciation $ 16,915 $ 17,487 $ (572) (3.3) %
Percentage of revenues 11.1 % 11.7 %
Depreciation expense decreased $0.6 million or 3.3% from the same period in 2022. The decrease was driven by the timing of assets being placed into service.
Restructuring
Year Ended December 31, Increase Percent
Change
2023 2022
(in thousands, except percentages)
Restructuring $ 2,417 $ — $ 2,417 — %
Percentage of revenues 1.6 % — %
During 2023, the Company recorded restructuring charges of $2.4 million as part of an organizational restructuring intended to streamline its operations, drive business objectives, reduce operating expenses and improve operating margins. The restructuring included a reduction of the Company’s then-current workforce by approximately 10%.
Proceeds from settlement
Year Ended December 31, Decrease Percent
Change
2023 2022
(in thousands, except percentages)
Proceeds from settlement $ — $ 2,061 $ (2,061) (100.0) %
Percentage of revenues — % 1.4 %
During the fourth quarter of 2022 the Company received proceeds from a legal settlement of $2.1 million.
Operating Income (Loss)
Year Ended December 31, Increase Percent
Change
2023 2022
(in thousands, except percentages)
Revenue $ 151,878 $ 149,680 $ 2,198 1.5 %
Operating income 6,288 5,560 $ 728 13.1 %
Percentages of revenues 4.1 % 3.7 %
Operating income for the year ended December 31, 2023 was $6.3 million, a margin of 4.1%, compared to operating income of $5.6 million, a margin of 3.7%, for the same period in 2022. The increase in operating income and improved percentage margin was driven by higher revenues and a decrease in operational costs, as discussed above.
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Income from equity method investment
Year Ended December 31, Decrease Percent
Change
2023 2022
(in thousands, except percentages)
Income from equity method investment $ 502 $ 1,597 $ (1,095) (68.6) %
Percentage of revenues 0.3 % 1.1 %
During the years ended December 31, 2023 and 2022, the Company recorded $0.5 million and $1.6 million, respectively, of income related to its proportionate share of eFC's net income. The Company records its proportionate share of eFC's net income three months in arrears. See note 7 of the notes to consolidated financial statements for additional information.
Impairment of investment
Year Ended December 31, Decrease Percent
Change
2023 2022
(in thousands, except percentages)
Impairment of investment $ 300 $ 2,300 $ (2,000) (87.0) %
Percentage of revenues 0.2 % 1.5 %
During the years ended December 31, 2023 and 2022, the Company recognized a $0.3 million and $2.3 million, respectively, loss related to the impairment of an investment. See note 7 of the notes to consolidated financial statements for additional information.
Gain on investments
Year Ended December 31, Increase Percent
Change
2023 2022
(in thousands, except percentages)
Gain on investments $ 614 $ 320 $ 294 91.9 %
Percentage of revenues 0.4 % 0.2 %
During the year ended December 31, 2023, the Company recognized a $0.6 million gain from a partial sale of its 40% common share interest in eFC. During the year ended December 31, 2022, the Company recognized a $0.3 million gain from the sale of its 40% common share interest in Rigzone. See note 7 of the notes to consolidated financial statements for additional information.
Interest Expense and Other
Year Ended December 31, Increase Percent
Change
2023 2022
(in thousands, except percentages)
Interest expense and other $ 3,482 $ 1,580 $ 1,902 120.4 %
Percentage of revenues 2.3 % 1.1 %
Interest expense and other increased by $1.9 million, or 120.4%, from the same period in 2022 due to higher debt outstanding on our revolving credit facility during 2023 and higher interest rates.
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Income Taxes
Year Ended December 31,
2023 2022
(in thousands, except
percentages)
Income before income taxes $ 3,622 $ 3,597
Income tax expense (benefit) 131 (579)
Effective tax rate 3.6 % (16.1) %
A reconciliation between the income tax expense at the federal statutory rate and the reported income tax expense (benefit) is summarized as follows:
Year Ended December 31,
2023 2022
Federal statutory rate $ 760 $ 755
Loss on sale of investments (22,881) —
Expiration of capital loss carryforward 4,680 —
Stock-based compensation (399) (1,130)
State tax expense, net of federal effect 80 139
Change in accrual for unrecognized tax benefits 263 (16)
Executive compensation 1,214 266
Research and development tax credits (1,651) (763)
Income from equity method investment (105) (335)
Change in valuation allowance 18,158 555
Other 12 (50)
Income tax expense (benefit) $ 131 $ (579)
Our effective income tax rate was 3.6% and (16.1)% for the years ended December 31, 2023 and 2022, respectively. The 2023 tax rate differed from the federal statutory rate primarily because of permanent book/tax differences in basis related to the sale of investments, the expiration of a capital loss carryforward, a tax benefit related to the vesting of stock-based compensation, deduction limitations on executive compensation, tax credits for research and development, and an increase in the valuation allowance for capital loss carryforwards. The 2022 tax rate differed from the federal statutory rate primarily because of a tax benefit related to the vesting of stock-based compensation, tax credits for research and development, and an increase in the valuation allowance associated with an investment.
Earnings per Share
Year Ended December 31,
2023 2022
(in thousands, except
per share amounts)
Net income $ 3,491 $ 4,176
Weighted-average shares outstanding - basic 43,571 44,274
Weighted-average shares outstanding - diluted 44,496 46,533
Diluted earnings per share $ 0.08 $ 0.09
Diluted earnings per share was $0.08 and $0.09 for the years ended December 31, 2023 and 2022, respectively. The lower 2023 earnings per share was driven by slightly lower net income, partially offset by lower diluted shares outstanding.
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Non-GAAP Financial Measures
We have provided certain non-GAAP financial information as additional measures for our operating results. These measures are not in accordance with, or an alternative for, measures in accordance with U.S. GAAP and may be different from similarly titled non-GAAP measures reported by other companies. We believe the presentation of non-GAAP measures, such as Adjusted EBITDA and Adjusted EBITDA margin, provides useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP metrics used by management to measure operating performance. Management uses Adjusted EBITDA and Adjusted EBITDA Margin as performance measures for internal monitoring and planning, including preparation of annual budgets, analyzing investment decisions and evaluating profitability and performance comparisons between us and our competitors. The Company also uses this measure to calculate amounts of performance based compensation under the senior management incentive bonus program. Adjusted EBITDA represents net income plus (to the extent deducted in calculating such net income) interest expense, income tax expense, depreciation and amortization, and items such as non-cash stock based compensation, losses resulting from certain dispositions outside the ordinary course of business including prior negative operating results of those divested businesses, certain write-offs in connection with indebtedness, impairment charges with respect to long-lived assets, expenses incurred in connection with an equity offering or any other offering of securities by the Company, extraordinary or non-recurring non-cash expenses or losses, losses from equity method investments, transaction costs in connection with the credit agreement, deferred revenues written off in connection with acquisition purchase accounting adjustments, write-off of non-cash stock-based compensation expense, impairment of investment, severance and retention costs related to dispositions and reorganizations of the Company, restructuring charges and losses related to legal claims and fees that are unusual in nature or infrequent, minus (to the extent included in calculating such net income) non-cash income or gains, including income from equity method investments, interest income, business interruption insurance proceeds, and any income or gain resulting from certain dispositions outside the ordinary course of business, including prior operating results of those divested businesses, and gains related to legal claims that are unusual in nature or infrequent.
Adjusted EBITDA Margin is computed as Adjusted EBITDA divided by Revenues.
We also consider Adjusted EBITDA and Adjusted EBITDA Margin, as defined above, to be important indicators to investors because they provide information related to our ability to provide cash flows to meet future debt service, capital expenditures, and working capital requirements, and to fund future growth. We present Adjusted EBITDA and Adjusted EBITDA Margin as supplemental performance measures because we believe that these measures provide our Board, management and investors with additional information to measure our performance, provide comparisons from period to period by excluding potential differences caused by variations in capital structures (affecting interest expense) and tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses), and to estimate our value.
We understand that although Adjusted EBITDA and Adjusted EBITDA Margin is frequently used by securities analysts, lenders and others in their evaluation of companies, Adjusted EBITDA and Adjusted EBITDA Margin have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our liquidity or results as reported under GAAP. Some limitations are:
• Adjusted EBITDA and Adjusted EBITDA Margin do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
• Adjusted EBITDA and Adjusted EBITDA Margin do not reflect changes in, or cash requirements for, our working capital needs;
• Adjusted EBITDA and Adjusted EBITDA Margin do not reflect interest expense, or the cash requirements necessary to service interest or principal payments on our debt;
• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and Adjusted EBITDA and Adjusted EBITDA Margin do not reflect any cash requirements for such replacements; and
• Other companies in our industry may calculate Adjusted EBITDA and Adjusted EBITDA Margin differently than we do, limiting their usefulness as a comparative measure.
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To compensate for these limitations, management evaluates our liquidity by considering the economic effect of excluded expense items independently, as well as in connection with its analysis of cash flows from operations and through the use of other financial measures, such as capital expenditure budget variances, investment spending levels and return on capital analysis.
Adjusted EBITDA and Adjusted EBITDA Margin are not measurements of our financial performance under GAAP and should not be considered as an alternative to revenue, operating income, net income, net income margin, cash provided by operating activities, or any other performance measures derived in accordance with GAAP as a measure of our profitability or liquidity.
A reconciliation of Adjusted EBITDA for the years ended December 31, 2023, 2022 and 2021 follows (in thousands):
Year Ended December 31,
2023 2022 2021
Reconciliation of Net Income (loss) to Adjusted EBITDA:
Net income (loss) $ 3,491 $ 4,176 $ (29,742)
Interest expense 3,482 1,580 748
Income tax expense (benefit) 131 (579) (629)
Depreciation 16,915 17,487 16,344
Non-cash stock based compensation 9,467 9,519 7,681
Income from equity method investment (502) (1,597) (190)
Proceeds from settlement — (2,061) —
Gain on investments (614) (320) (1,198)
Impairment of right-of-use asset — — 1,919
Impairment of investment 300 2,300 —
Severance and related costs 1,167 445 1,969
Loss on discontinued operations, net of tax — — 29,340
Restructuring 2,417 — —
Other — — (80)
Adjusted EBITDA $ 36,254 $ 30,950 $ 26,162
Reconciliation of Operating Cash Flows to Adjusted EBITDA:
Net cash provided by operating activities $ 21,345 $ 36,035 $ 28,581
Interest expense 3,482 1,580 748
Amortization of deferred financing costs (145) (146) (147)
Income tax expense (benefit) 131 (579) (629)
Deferred income taxes 3,301 3,800 569
Change in accrual for unrecognized tax benefits (263) 16 156
Change in accounts receivable 1,398 2,109 1,102
Change in deferred revenue 893 (4,718) (10,075)
Discontinued operations results — — (3,593)
Severance and related costs 1,167 445 1,969
Restructuring 2,417 — —
Changes in working capital and other 2,528 (7,592) 7,481
Adjusted EBITDA $ 36,254 $ 30,950 $ 26,162
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A reconciliation of Adjusted EBITDA Margin for the years ended December 31, 2023, 2022 and 2021 follows (in thousands, except percentages):
Year Ended December 31,
2023 2022 2021
Revenues $ 151,878 $ 149,680 $ 119,903
Net income (loss) $ 3,491 $ 4,176 $ ( 29,742 )
Net income (loss) margin (1)
2 % 3 % (25) %
Adjusted EBITDA $ 36,254 $ 30,950 $ 26,162
Adjusted EBITDA Margin (1)
24 % 21 % 22 %
(1) Net income (loss) margin and Adjusted EBITDA Margin are calculated by dividing the respective measure by that period's revenues.
Liquidity and Capital Resources
Cash Flows
We have summarized our cash flows for the years ended December 31, 2023, 2022 and 2021 as follows (in thousands):
Year Ended December 31,
2023 2022
Cash from operating activities $ 21,345 $ 36,035
Cash used in investing activities (15,311) (17,656)
Cash used in financing activities (4,834) (16,913)
We have financed our operations primarily through cash provided by operating activities and borrowings under our revolving credit facility. At December 31, 2023, we had cash and borrowings of $4.2 million and $38.0 million, respectively, compared to $3.0 million and $30.0 million, respectively, at December 31, 2022.
Liquidity
Our principal internal sources of liquidity are cash on hand, as well as the cash flow that we generate from our operations. In addition, we had $62.0 million in borrowing capacity under our $100.0 million Credit Agreement at December 31, 2023, subject to certain availability limits including our consolidated leverage ratio, which generally limits borrowings to 2.5 times annual Adjusted EBITDA levels, as defined in the Credit Agreement. We believe that our existing cash and cash equivalents, cash generated from our continuing operations and available borrowings under our Credit Agreement will be sufficient to satisfy our currently anticipated cash requirements through at least the next 12 months and the foreseeable future thereafter. However, it is possible that one or more lenders under the Credit Agreement may refuse or be unable to satisfy their commitment to lend to us, we may violate one or more of our covenants or financial ratios contained in our Credit Agreement or we may need to refinance our debt and be unable to do so. In addition, our liquidity could be negatively affected by a decrease in demand for our products and services and the ability of our customers to pay for current or future services. We may also make acquisitions and may need to raise additional capital through future debt financings or equity offerings to the extent necessary to fund such acquisitions, which we may not be able to do on a timely basis or on terms satisfactory to us or at all.
Comparison of Years Ended December 31, 2023 and 2022
Operating Activities
Cash flows from operating activities is driven by earnings and is dependent on the amount and timing of billings and cash collections from our customers. Cash flows from operating activities primarily consists of net income adjusted for certain non-cash items, including depreciation, changes in deferred tax assets and liabilities, stock based compensation, impairments, and the effect of changes in working capital. Net cash flows from operating activities were $21.3 million and $36.0 million for the years ended December 31, 2023 and 2022, respectively, a decrease of $14.7 million. Cash inflow from operations is driven by earnings and is dependent on the amount and timing of payments to vendors and employees and billings to and cash collections from our customers. Cash provided by operating activities during the year ended December 31, 2023 decreased as compared to
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the prior year due to the amount and timing of bonus payments, of payments to vendors, and of billings to and cash collections from our customers.
Investing Activities
During the year ended December 31, 2023, cash used in investing activities was $15.3 million compared to $17.7 million of cash used in investing activities during the year ended December 31, 2022. Cash used in investing activities during the year ended December 31, 2023 is comprised of $20.3 million of purchases of fixed assets, partially offset by $5.0 million of cash received from sale of investment. Cash used in investing activities during the year ended December 31, 2022 is primarily comprised of $18.0 million of purchases of fixed assets, which is primarily comprised of capitalized development costs as the Company continues to invest in its products.
Financing Activities
Cash used in financing activities during the year ended December 31, 2023 was $4.8 million primarily due to cash uses of $12.8 million, net, related to share repurchases, partially offset by $8.0 million of net proceeds on long-term debt. Cash used during the year ended December 31, 2022 was $16.9 million primarily due to cash uses of $23.4 million, net, related to share repurchases and $0.5 million from financing costs paid, partially offset by $7.0 million of net proceeds on long-term debt.
Financings and Capital Requirements
Credit Agreement
We have a $100 million revolving credit facility, which matures June 2027, with $38.0 million of outstanding borrowings on the facility at December 31, 2023, leaving $62.0 million available for future borrowings, subject to the terms of the Credit Agreement. Borrowings under the Credit Agreement denominated in U.S. dollars bear interest, payable at least quarterly, at the Company’s option, at the Secured Overnight Financing Rate ("SOFR") or a base rate, plus a margin. Borrowings under the credit agreement denominated in pounds sterling, if any, bear interest at the Sterling Overnight Index Average ("SONIA") rate plus a margin. The margin ranges from 2.00% to 2.75% on SOFR and SONIA loans and 1.00% to 1.75% on base rate loans, determined by the Company’s most recent consolidated leverage ratio, plus an additional spread of 0.10%. The Company incurs a commitment fee ranging from 0.35% to 0.50% on any unused capacity under the revolving loan facility, determined by the Company’s most recent consolidated leverage ratio. Assuming an interest rate of 7.71% (the rate in effect on December 31, 2023) on our current borrowings, interest payments are expected to be $2.9 million per year in years 2024 through 2026 and $1.5 million in 2027. The Credit Agreement contains various affirmative and negative covenants and also contains certain financial covenants, including a consolidated leverage ratio and a consolidated interest coverage ratio. As of December 31, 2023, the Company was in compliance with all of the financial covenants under the Credit Agreement. Refer to Note 11 of the notes to consolidated financial statements and Item 7A. "Quantitative and Qualitative Disclosures about Market Risk - Interest Rate Risk."
Contractual Obligations
The Company has operating leases for corporate office space and certain equipment. The leases have terms from one year to ten years, some of which include options to renew the lease, and are included in the lease term when it is reasonably certain that the Company will exercise the option. No leases include options to purchase the leased property. As of December 31, 2023 the value of our lease right-of-use asset was $4.8 million and the value of our lease liability was $8.5 million. See also Note 6 of the notes to consolidated financial statements for further information.
We make commitments to purchase advertising from online vendors, which we pay for on a monthly basis. We have no significant long-term obligations to purchase a fixed or minimum amount with these vendors.
Other Capital Requirements
As of December 31, 2023, we recorded approximately $1.0 million of unrecognized tax benefits as liabilities, and we are uncertain if or when such amounts may be settled. Related to the unrecognized tax benefits considered permanent differences, we have also recorded a liability for potential penalties and interest. Included in the balance of unrecognized tax benefits at December 31, 2023 are $1.0 million of tax benefits that would affect the effective tax rate if recognized. The Company believes it is reasonably possible that as much as $0.2 million of its unrecognized tax benefits may be recognized in the next twelve months.
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The Company's Board of Directors approved a stock repurchase program that permits the Company to repurchase its common stock. During the year ended December 31, 2023, the Company repurchased 1.7 million shares for $6.9 million. As of December 31, 2023, the value of shares available to be purchased under the current plan was $4.8 million. Management has discretion in determining the conditions under which shares may be purchased from time to time.
We anticipate capital expenditures in 2024 to be approximately $15 million to $17 million. We intend to use operating cash flows to fund capital expenditures.
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Cyclicality
The labor market and certain of the industries that we serve have historically experienced short-term cyclicality. However, we believe that online career websites and marketplaces continue to provide economic and strategic value to the labor market and industries that we serve.
Any slowdown in recruitment activity that occurs could negatively impact our revenues and results of operations. A decrease in the unemployment rate or a labor shortage, including as a result of an increase in job turnover, generally means that employers (including our customers) are seeking to hire more individuals, which would generally lead to more job postings and database licenses and have a positive impact on our revenues and results of operations. Based on historical trends, improvements in labor markets and the need for our services generally lag behind overall economic improvements. Additionally, there has historically been a lag from the time customers begin to increase purchases of our recruitment services and the impact to our revenues due to the recognition of revenue occurring over the length of the contract, which can be several months to over a year.
From time to time, we see market slowdowns, which can lead to lower demand for recruiting technologists and financial and security cleared professionals. If recruitment activity slows in the industries in which we operate, our revenues and results of operations could be negatively impacted.
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Recent Accounting Pronouncements
For a discussion of new accounting pronouncements affecting the Company, refer to Note 2 of the notes to consolidated financial statements included in Item 8 of this Annual Report.
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