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Dice Holdings, Inc. (DHX)

Credit Suisse 15th Annual Global Services Conference

March 11, 2013 5:30 pm ET


Michael P. Durney - Chief Financial Officer, Principal Accounting Officer, Senior Vice President of Finance and Treasurer


John R. Blackledge - Crédit Suisse AG, Research Division


John R. Blackledge - Crédit Suisse AG, Research Division

Hello, everyone. Our next presentation will be by Dice Holdings. Presenting for Dice, we have Michael Durney, SVP of Finance and CFO. With that, I'll turn it over to Mike. Just to note, the breakout session will be held in Pine Room after the presentation. Thank you.

Michael P. Durney

Thank you. Audio all good? Okay. Welcome to everybody. Those of you who were here on 2:30, I guess, couldn't get a golf game, so thank you for joining us. I couldn't get one either. So for those of you not familiar with Dice, I'll just give an overview and then get to some of the questions we hear most often from investors that are of interest to them. So just a quick overview on Dice. For those of you don't know what Dice is, Dice Holdings, we operate websites focused on professionals that help them manage their careers and provide them information. And we break it down to the following segments: So the largest is Tech & Clearance, which Dice is the biggest site. That site's been around for over 20 years, represents about 60% of the business today, on its own. We also have a small site, ClearanceJobs, which focuses on people with active government security clearance. And most recently, we bought 2 sites, 3 sites actually, 2 big ones that we bought them from Geeknet, Slashdot and SourceForge, which provide information and engagement for tech professionals to interact with each other. That's a Slashdot site, and then SourceForge is principally a download site for open source software, which I'll go into in a little bit. The next segment is Finance, which is eFinancialCareers, which obviously serves the financial services, capital markets industry. It's a service that started in the U.K. in 2000, now serves 19 markets. And then the last major segment is Energy. We operate the Rigzone service, which is a little over 10% of the business today. So if you try to get a handle on how we compete in the marketplace and what we provide, and you want to take it away with one word, I would think of the word efficiency. We give access to people for recruiters in the most efficient manner. So all our sites are targeted. They serve the professional communities that their aimed at, the way that the sites operate, the infrastructure, the site is all geared towards them specifically. So Dice, for instance, the profile information on Dice is all about technologies, programming languages, operating systems that you've used, and so you can find these people and their skill sets quite efficiently. So essentially, what recruiters do is they will post jobs looking for a response through applications or search the resume profile database, and what users do is they'll post their profiles in order to be found or look at job listings and apply to those jobs. But again, take away from here, the word efficiency. That's how we compete. So one thing that we get asked about often is the impact of social media and specifically, LinkedIn, which may come as a surprise to people. And one of the things that we try to portray is the world tends to think about recruiting people and the impact of social media as broken down between active seekers and passive seekers. And the world likes to think of passive seekers as fully employed, great at what they do and it would just be a dream to get them. And active seekers are people who are unemployed, not very good with what they do and you would not want to bother with them. The fact of the matter is there's much more nuance than that, there's much more of a continuum. So while a site like LinkedIn focuses on the range of people, they really compete with us by focusing on people who are deemed to be passive. But a good number of those people are so passive. they're what we refer to as potted plants. They're people who like what they do and will never move. The way we really compete is on the two middle categories, what we call the silver platter passives, which are people who like what they do, happy in their employment, but if you give them the right opportunity, they would take it. And then career managers are people who are employed, good at what they do, but they tend to focus on how their career is moving, how it's migrating. And so they are open to new opportunities quite routinely. So the world is not really passive and active. It's a continuum of people, and what you want to do is reach people who are actionable, who you can act on. And for us, it's the 2 middle ones. And then the last one at the bottom, active seekers, is not all people who are out of work and looking for a job. They are people who actively manage their careers, they may be contractors. So if you think about Tech and how Tech works, you might be a contractor that's forever looking for the next role because you have a defined life cycle in your current employment, your current contracting position. And what that's done for us is create a nice little business. So we've had decent revenue growth over the last couple of years coming out of the downturn, and we operate at significant EBITDA margins and generate cash flow. And I'm going to get to the margin issue shortly because we have a few things that we want to cover on today's agenda. One of them is an overview of the market and what's going on in the market and how it impacts us. I'm going to talk about Open Web, which is a new product we have released in the last few months and publicly announced at the end of January. Talk about the Slashdot Media assets and why we bought them and the benefit they provide. And then address the margin question, which is the most interesting question that we hear today, and we think it's worth spending a little time on. So let's go to the market. So a lot of people focus on the employment numbers, they came out again last Friday, and everybody was happy with the overall number. We tend to focus on professional and business services, which over the last couple of years coming out of the downturn, has had a nice little run. So there's a decent amount of jobs created in February. That number was over 70,000, 73,000 new jobs created in professional and business services. That's really important in our business. But one of the key drivers in our business is turnover, and it's a fact that people tend not to focus on very much. But what we've done here is laid on the impact of turnover and the number of job openings created by voluntary quits as compared to the number of job openings created by new job creation. So you need new job creation in order to create turnover. So they're not mutually exclusive, but the impact of turnover dwarfs the impact of new job creation as it relates to our business because turnover creates a domino effect, which creates the need for our services. Right. So if you think about the domino effect of somebody leaving a job, and that may create another opening and then there's a second opening and the -- what I refer to as the cascading domino effect of turnovers, pretty significant. And this is one of the reasons why in our business, we've had fewer shorter-term customers because the demand just hasn't risen to where it was before. There's a lot of theories about why that is. The confidence in the employment market is probably the biggest driver. That confidence is driven by concern about spousal employment, concern about health coverage, concern about equity in your home. If you think about why people or how people think about moving to the next role, one of the things they do is get concerned about whether as the last one in, they might be the first one out. So you need some level of confidence in order for turnover to break. And if you look at over the last 2 cycles, we've approached the long-term average but haven't exceeded the long-term average. And if you think about just the delta between the long-term average and where it's been recently, that dwarfs the number of job openings created by new job creation. So this is an important component. We expect at some point, it's going to break. You have this built-up demand for turnover, people are unhappy in their roles, they will move at some point. Generally speaking, the reason we focus on professional communities is because they are generally tighter. There's -- unemployment rate for professional categories is always better than it is for the overall environment. So in each of the markets that we serve, tech recruiting has been pretty good. There's been some gradual improvement. This is just a cross section of some of the markets. We just released our Dice report today, the March 1, which showed that some of the secondary markets have been really good performers, places like St. Louis, Charlotte, Detroit. And Detroit's been that for a couple of times, interesting enough, but it's somewhat mixed. New York certainly suffers from the significance of employment in the financial services community, especially of tech people. Moving on to financial services, recruiting is tough, but it seems to be stabilizing. So this is the number of jobs we have on the eFinancialCareers site. There's a seasonal dip each year around December when there's little recruiting activity and it generally bounces back, but you can see it's starting to recover. Asia's been pretty good. The U.S. market has actually been pretty good for us. U.K., it's so, so. Continental Europe has been awful. It shows no signs of being anything other than awful. I don't think that's news to anybody, but we suffered the impact of Continental Europe. But the rest of the markets, we're starting to see some stabilization, a little bit of stabilization. And oil and gas has been really good. This is new job postings on our site, on the Rigzone site, and you could see we've had the highest levels ever in the last 2 months. So the oil and gas business is really strong. We're taking advantage of it both domestically and internationally, and we expect that to continue. So let's move to Open Web. So what is Open Web? Open Web is a service that we've just launched, it's embedded in the Dice service today. And what Open Web does is it is an aggregator of profile information from across the web based on reaching into open profiles of people, aggregating them, creating a profile, and then we present as part of our Dice recruitment package. So we have about 50 sites today. It crawls that information, puts it together, parses the information and creates an aggregated profile of a person. So this is our way of providing more information and more value to recruiters because we're making it more efficient. Go back to the word I've used before, how we compete is on efficiency. So we're aggregating information, presenting it to them in places where they would go get it anyway, and some cases, getting information that they wouldn't go get on their own. And so, what does this look like? This is in the Dice service. Sorry about that -- this is in the Dice service. So this is based on the search, which has been narrowed a couple of times. And what we do is we show the information and where it's gotten from. So if you see the share buttons on the right, this is where the information is presented from. This gives you a whole other list of people to look at. You can either do this on your own through this service, you have to be a Dice customer in order to use it, or you can go to the Dice part of the service first, find a person and see if they have an Open Web profile. But if we just pick a person from there, you'll see how the aggregated profile -- let me just go over here and point. So this information right through here is aggregated from a number of different places. The places it's aggregated from is over here on the left. And then if you want to get more information from those sites, you just click on there and it takes right to the site. There's a couple of values of this besides just presenting the information to you in one place. One of them is the way it's aggregated, it's timestamped. So the most current information about this person is presented here. So that if you went to one of these sites, you might find that Wade's information in one place is more current than another. And so if you went to that one place, you'd have current information. But if you happen to go to the other place first, you might get stale information. You might look at that and say, this person doesn't work where they are, they're not working at the place where I thought they were, I'm going to discard this person. Whereas we're aggregating information and presenting it including making sure that it's the most current information. The other thing that's great about this service is that you can contact the person. So you'll notice in the upper part of the profile is that person's contact information. So when we talk about people are actionable, one of the ways that they're actionable is by giving them a way to contact that person. And we think that's a great service to people because right now, you'd have to go into different places and try to parse through where you can contact that person. So I'd love to give you a demo, we didn't want to take the chance of trying to do that live here. So in the breakout session right after here, we're going to be giving demos of the site. This is probably the most interesting and exciting thing we've done in the roughly 13 years that I've been here, and we think it revolutionizes how we provide service to our customers. So we currently access about 50 sites. Again, this is all public information. We're not using APIs to directly get any of the information. We're certainly going to some of the standards like Facebook and LinkedIn, but we're going to other places that recruiters wouldn't naturally think of right away. So we go to places like Google+, we go to some place like Gravatar. So Gravatar is a place where you can manage your online profiles. That's one of the places where we get contact information. We go to tech-specific sites like GitHub or reddit or Stack Overflow, where you can look at how that tech person has been interacting from a social community standpoint. You can have some indication as to how active they are, which is an indicator -- I'm sorry, which is an indication of their skill sets, right, by how active they are, whether it's through their employment or through some other -- through their own time. So we're taking the information from these roughly 50 sites, aggregating it, time stamping it, parsing it and then presenting it. And it's a really important addition to our services. It's in beta in Dice, and then we'll roll it out to our other services once we've gone through the beta and feedback process. Feedback's been excellent so far from customers. Based on the surveys we've done, over 70% of them really like the service. About a quarter of the customer base so far has used it in some form, and we're really just starting to roll it out. But the feedback we've gotten from people who have used it has been really good. And if you look at some of the specifics -- I wouldn't stand up here and read it, but they like the fact that we're presenting all this information in one place. So back to efficiency. How do we compete? We compete on efficiency, and this is one way that we demonstrate it. So if you think about the Dice service and how we compete in the marketplace, we are now the most complete set of information to help you reach tech professionals. So you can reach them in other places, but we provide a number of things to do that. So job postings and resume database, which are the core of the historical product. Now we've added Open Web to that. And to go back to what I said before, when you think about it, the focus on reaching passive candidates versus active candidates, our view is you need to reach actionable candidates. That's how you get an ROI on your recruiting dollars to reach those people that you can actually act on. And people you can act on are people who want to be recruited or want to be contacted, and you can act on by actually contacting them directly through the service. And so the Dice service, which is built on this foundation, now provides the most complete package of trying to reach tech professionals in order to recruit them. So moving on quickly to Slashdot Media, we bought that business in September from Geeknet. We really bought it for 3 reasons. First and foremost, we bought it in order to provide a way to increase engagement and create more interaction on the Dice service. So the SourceForge site has 40 million unique visitors a month. There's about 4 million downloads of open source software per day. The Slashdot service has about 4 million unique visitors a month. Just by comparison, Dice has a little over 2 million unique visitors per month. So we've now open it up so we can reach a greater number of people, and what we believe will happen is, we'll create more engagement and that's -- we're really just starting to do that now, we've seen some decent results early on, but create more engagement on the Slashdot and SourceForge services, which will interact with Dice. So for instance if you're reading content on Slashdot that's about a specific programming language, you will now be offered job opportunities in the form of a job widget on the side, which will give you greater access to those opportunities on the Dice service. The other thing we've done initially is we've put the Dice service as the back-end job board for the Slashdot and SourceForge services, and so all the traffic that's directed from those sites, looking for career opportunities directly on their own, will end up in the Dice service. And so we -- the first reason we bought it was to increase the interaction on the Dice service. Second reason is international. So we've talked for years about trying to be in tech recruiting outside North America. So the Dice service is only in the U.S. and Canada today. The 40 million unique visitors that use SourceForge, 80% of them are outside North America. Slashdot usage is about 40% outside North America. So we now, for the first time, have direct access to users outside North America, together with Open Web, which is the global service -- we didn't talk about specifically before because we were focusing on North America, but that crawls information globally. So now we have the tool in which to access information, together with the user base. And for the first time, we actually have the ability to now build an online recruiting service in tech in markets outside North America. And the last reason we bought it was we like the tech media business, the B2B tech spend, which is now evolving from kind of historical display into other ways of reaching tech professionals is a business we really like. And so we're starting to rebuild the organization from a sales force standpoint, it's an ongoing process. But we're really excited about the opportunities in this business and growing this business. So this has been a really important acquisition for us and you'll hear more about the results of some of the things we're doing specifically on the Dice and Slashdot and SourceForge sites going forward. This is what it looks like. So this is the SourceForge site. So I talked before about being the job engine. So if you're looking for jobs on SourceForge, you now have the Dice service powering those. And then moving over to Slashdot, if you are engaged in Slashdot in an interaction on the site, over to the side, that's what we call the job widget, you would be offered opportunities for jobs that are pertinent to the content that you're reading. So again, remember, perspective. Dice has about 2 million unique visitors a month, Slashdot has about 4 million, 60% of those in North America. SourceForge has about 40 million users a month. About 20% of those in North America, so we're expanding our opportunity to reach tech professionals in order to drive them to the Dice service. So a really important acquisition opportunity for us. So that brings us to the margin question. So the biggest single thing we get asked today besides LinkedIn is margin. So earlier, I showed you our historical performance over the last couple of years. Our -- for years, we've talked about EBITDA margins of 40% to 45%. We've been very consistent about that over a number of years. We were in that range for a number of years. And then 2012 and 2013, it's dropped. So we're sensitive to the question, although I think there's a lot of people out there who would love to have a problem of EBITDA margins dropping from 43% to 40%, 37%. And so one of the main questions we get asked is, is this permanent margin reduction and have we now changed our view over the long term about our EBITDA margins. And the answer is no, we haven't. So let's talk about -- let's get down into a level and talk about EBITDA. So revenues in 2012 were $195 million, so this is actual revenues including the stub period for SourceForge and Slashdot. So 100 basis points of margin is about $2 million. 2011 EBITDA margin was 43%. So if you look at some of the things that are impacting margin, first and foremost, eFinancialCareers. So we've been -- it's been well documented, eFinancialCareers, given the overall global financial crisis, revenues have declined in that business. We haven't cut spending at this point to match that revenue decline. We have continued investing in the business. So expenses are roughly flat on the business that had a reduction of about $7 million in 2012 versus 2011. So the impact on the overall business of the margins in eFinancialCareers is about 200 basis points. The impact of Slashdot Media as we've started to integrate it is about 75 basis points in that period. And then we have some other development products. We've talked about healthcare, runs at an EBITDA loss, and then we have some other projects we've been working on. Collective aspect of that including the Open Web product since we started investing in that in the fourth quarter is about 100 basis points. So here, you have a change in EBITDA margin from 43% to 40%, and you have 3 items that basically aggregate about 400 basis points of margin. So just keep that in mind. Moving from 2011 to '12, now going to 2012 to '13, revenues are $217 million, so 100 basis points of margin is about $2.2 million. So margin in 2012 was 40%. This year, it's expected to be 37%. So you have a number of items again. So Slashdot Media again, we're investing in that business. We've made some short-term investments. We've said probably, we think that business in the near term is about 25% EBITDA margin. So the impact of that for the full year is about 200 basis points. The impact of the Open Web investment, which we think, and I talked about the beta on Dice, but we think there's a whole range of products that will come out of that investment. This year, that's about 100 basis points or so. We're moving our CRM from a service we bought about 12 years ago. We're now putting in a new service, which is a SaaS model. It's about $2 million of investment this year. So that's about 100 basis points, and then eFinancialCareers has a small impact. So there's distinct items that impact EBITDA. So when we look at these things, do they impact the margin profile of the business long term? I think the answer, if you go through them is, Open Web, no, it probably improves it over time as we get various products out of that business over what is a relatively nominal investment. Slashdot Media, does it impact the business -- the margin business? No. It's about a 25% margin operation. We think it could be higher. We think it will be higher at some point in the future. But it's only 10% of the company, right? So it doesn't impact that much once we get out of the investment stage. eFinancialCareers, I think that's a question. I think we're still trying to evaluate what the margin profile of eFinancialCareers is. That is a business that had an EBITDA margin of roughly 40%. That's now roughly 30%. So again, I'm not sure it's a huge issue, but it remains to be seen for the next couple of years what the impact of that is. And then does CRM permanently impact the business? No, it's all leverage-able. This just happens to be the year that we're making the investment to convert from the old system to the new system. So yes, the way we look at margin, it certainly has been impacted in a not so great environment, but we're making investments that we think will have a benefit going forward. And then whenever we give a public presentation, we can't help but remind people, this is a business that generates a lot of cash. We have significant free cash flow from operations. That's one of the reasons why we love the business. So with that, I have a minute or so for questions. Any questions?

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