Item 1A. Risk Factors
Risks Related to Our Business
We may not be successful in executing our tech-focused strategy which could have a material adverse effect on our results of operations.
We may not be successful in pursing our tech-focused strategy, which includes narrowing priorities to initiatives related to connecting technology professionals with employers across all industries. There can be no assurance that the allocation of resources behind our tech-focused business and sales and marketing efforts will result in the strengthening of our competitive position, the failure of which could have a material adverse effect on our financial condition and results of operations. As a result of our strategic focus on technology professionals and the divesting of our businesses operating in and focused on different professions, we have an increased dependence on the demand for technology-focused professionals and may not have the mitigating benefits ofexposure to a portfolio of diverse professions in the event of a downturn in the demand for such technology professionals. For example, in 2022 and thus far in 2023, several large technology companies have announced planned layoffs. If the need for technology professionals decreases, whether because there is reduced demand for technologists by our customers, as a result of macroeconomic conditions affecting their businesses, the aforementioned layoffs, reductions in hiring or otherwise, our ability to sell recruitment packages to our customers may be adversely impacted.
A write-off of all or a part of our goodwill and intangible assets would hurt our operating results.
We have significant intangible assets and goodwill. As of December 31, 2022, we had $128.1 million and $23.8 million of goodwill and acquired intangible assets, respectively, on our balance sheet, which represented approximately 57% and 10%, respectively, of our total assets. We do not amortize goodwill nor our indefinite-lived acquired intangible asset, which is the Dice trademarks and brand name, under U.S. GAAP and instead are required to review them at least annually for impairment. The annual impairment test for the Dice trademarks and brand name is performed on October 1 of each year. DHI has experienced impairment charges in the past. Most recently, during the first and third quarters of 2020, because of the impacts of the COVID-19 pandemic and its potential impact on future earnings and cash flows for the tech-focused reporting unit and those that are attributable to the Dice trademarks and brand name, the Company recorded impairment charges totaling $37.8 million. In the event an impairment is identified again in the future, a charge to earnings would be recorded. Although it would not affect our cash flow or liquidity position, a write-off in future periods of all or a part of our goodwill or intangible asset would have a material adverse effect on our overall results of operations. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates—Goodwill and Indefinite-Lived Acquired Intangible Assets.”
We operate in a highly competitive developing market and we may be unable to compete successfully against existing and future competitors.
The market for career services is highly competitive and barriers to entry in the market are relatively low. There are multiple generalist job boards, as well as a number of existing and emerging alternative business models seeking to compete in our target markets. We do not own any patented technology that would expressly preclude or inhibit competitors from entering the recruiting and career development services market. We compete with other companies that direct all or portions of their websites toward certain segments or sub-segments of the industries we serve. We compete with generalist job boards, some of which have substantially greater resources and brand recognition than we do, such as CareerBuilder, Monster.com, Snagajob, Indeed, ZipRecruiter, and Seek, which, unlike specialist job boards, permit customers to enter into a single contract to find professionals across multiple occupational categories and attempt to fill all of their hiring needs through a single website, as well as job boards focused specifically on the industries we service, such as Stack Overflow, FT.com, JobServe, Doximity, and Upwork. We also compete with newspaper and magazine publishers, national and regional advertising agencies, executive search firms and search and selection firms that carry classified advertising, many of whom have developed, begun developing or acquired new media capabilities, such as recruitment websites, or have recently partnered with generalist job boards. We also compete with general business sites and print publications, as well as technology news and information community sites, such as Google News, Digg.com and Reddit.com. In addition, we face competition from aggregators of classified advertising, including TalentBin, Entelo, JobDiva, Daxtra, CEIPAL, and Google. Social and professional networking sites, such as LinkedIn, Facebook, Twitter and Google compete with us in providing professional services. We also compete with new competitors, including career-focused community sites such as Glassdoor and talent relationship management software
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providers such as Avature and SmashFly, and emerging competitors with new business models and products that customers are more willing to trial during periods when talent is scarce.
Some of our competitors have longer operating histories, larger client bases, longer relationships with clients, greater brand or name recognition, or significantly greater financial, technical, marketing and public relations resources than we do. As a result, they may be in a position to respond more quickly to new or emerging technologies and changes in customer requirements, and to develop and promote their products and services more effectively than we can. We may not be able to adapt to such technological changes or offer new products on a timely or cost-effective basis or establish or maintain competitive positions. If we are unable to develop and introduce new products and services, or enhancements to existing products and services, in a timely and successful manner, our business, results of operations, financial condition and liquidity could be materially and adversely affected, and the market price of our common stock would likely fall.
We must adapt our business model to keep pace with rapid changes in the recruiting and career services business, including rapidly changing technologies and the development of new products and services.
Providing online recruiting and career development services is a rapidly evolving business, and we will not be successful if our business model does not keep pace with new trends and developments. The adoption of new recruiting and job seeking techniques, particularly among those who have historically relied on traditional recruiting methods, requires acceptance of a new way of conducting business, exchanging information and applying for jobs. If we are unable to adapt our business model to keep pace with changes in the recruiting business, or if we are unable to continue to demonstrate the value of our online services to our customers, our business, results of operations, financial condition and liquidity could be materially adversely affected. Our success is also dependent on our ability to adapt to rapidly changing technology and to make investments to develop new products and services. Accordingly, to maintain our competitive position and our revenue base, we must continually modernize and improve the features, reliability and functionality of our service offerings and related products in response to our competitors. Future technological advances in the career services industry may result in the availability of new recruiting and career development offerings. Some of our competitors have longer operating histories, larger client bases, longer relationships with clients, greater brand or name recognition, or significantly greater financial, technical, marketing and public relations resources than we do. As a result, they may be in a position to respond more quickly to new or emerging technologies and changes in customer requirements, and to develop and promote their products and services more effectively than we can. We may not be able to adapt to such technological changes or offer new products on a timely or cost-effective basis or establish or maintain competitive positions. If we are unable to develop and introduce new products and services, or enhancements to existing products and services, in a timely and successful manner, our business, results of operations, financial condition and liquidity could be materially and adversely affected, which could result in a decline in the market price of our common stock.
Trends that could have a critical impact on our success include: rapidly changing technology in online recruiting, evolving industry standards relating to online recruiting, developments and changes relating to the Internet and mobile devices, evolving government regulations, competing products and services that offer increased functionality, changes in requirements for customers and professionals, and privacy protection concerning data available and transactions conducted over the Internet.
If we fail to develop and maintain our reputation and brand recognition our business could be adversely affected.
We believe that establishing and maintaining the identity of our brands, Dice and ClearanceJobs, is critical in attracting and maintaining the number of professionals and customers using our services, and that the importance of brand recognition will increase due to the growing number of services similar to ours and relatively low barriers to entry. Promotion and enhancement of our brands will depend largely on our success in continuing to provide high quality recruiting and career development services. If users do not perceive our existing career and recruiting services to be of high quality, or if we introduce new services or enter into new ventures that are not favorably received by users, the uniqueness of our brands could be diminished and accordingly the attractiveness of our websites to professionals and customers could be reduced. We may also find it necessary to increase substantially our financial commitment to creating and maintaining a distinct brand loyalty among users. If we cannot provide high quality career services, fail to protect, promote and maintain our brands or incur excessive expenses in an attempt to improve our career services or promote or maintain our brands, our business, results of operations, financial condition and liquidity could be materially adversely affected.
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Our business is largely based on customers who purchase recruitment packages. Any failure to increase or maintain the number of customers who purchase recruitment packages could adversely impact our revenues.
Our customers typically include recruiters, staffing firms, consulting firms and direct hiring companies. Customers can choose to purchase recruitment packages, classified postings, advertisements, or career fair and recruitment event booth rentals. Most of our revenues are generated by the fees we earn from our customers who purchase recruitment packages. Our growth depends on our ability to retain our existing recruitment package customers and to increase the number of customers who purchase recruitment packages, as well as introduce new pricing options. Any of our customers may decide not to continue to use our services in favor of alternate services, lack of need, or because of budgetary constraints or other reasons. We cannot assure you that we will be successful in continuing to attract new customers or retaining existing customers or that our future sales efforts in general will be effective. If our existing customers choose not to use our services, decrease their use of our services, or change from being recruitment package customers to purchasing individual classified postings, our services, job postings and resumes posted on our websites could be reduced, search activity on our websites could decline, the usefulness of our services to customers could be diminished, and we could experience declining revenues and/or incur significant expenses. Dice recruitment package customers at December 31, 2022, 2021, and 2020 were 6,311, 6,004, and 5,150, respectively, while ClearanceJobs recruitment package customers at December 31, 2022, 2021, and 2020 were 2,064, 1,878, and 1,718, respectively.
If we fail to attract qualified professionals to our websites or grow the number of qualified professionals who use our websites, our revenues could decline.
The value of our websites to our customers is dependent on our ability to continuously attract professionals with the experience, education and skill-sets our customers seek. For example, the professionals who post their resumes on Dice.com are generally highly educated, have extensive work experience, and the majority are currently employed. To grow our businesses, we must continue to convince qualified professionals that our services will assist them in finding employment, so that customers will choose to use our services to find employees. If we are unable to increase the number of professionals using our websites, or if the professionals who use our websites are viewed as unattractive by our customers, our customers could seek to list jobs and search for professionals elsewhere, which could cause our revenues to decline.
If we are not able to successfully identify or integrate future acquisitions our management’s attention could be diverted, and our efforts to integrate future acquisitions could consume significant resources.
An important component of our tech-focused strategy is developing new capabilities that strengthen and expand our position in the U.S. technology talent acquisition market and broaden the talent solutions through the acquisition of other complementary businesses and technologies. Our further growth may depend in part on our ability to identify additional suitable acquisition opportunities or consummate such acquisitions on terms that are beneficial to us. We may not be able to identify suitable acquisition opportunities or consummate such acquisitions on favorable terms or at all. In addition, the anticipated results or operational benefits of any businesses we acquire may not be realized and we may not be successful in integrating other acquired businesses into our operations. Failure to manage and successfully integrate acquired businesses could harm our business. Even if we are successful in making an acquisition, we may encounter numerous risks, including the following:
•expenses, delays and difficulties in integrating the operations, technologies and products of acquired companies;
•potential disruption of our ongoing operations;
•diversion of management’s attention from normal daily operations of our business;
•inability to maintain key business relationships and the reputations of acquired businesses;
•the difficulty of integrating acquired technology and rights into our services and unanticipated expenses related to such integration;
•the impairment of relationships with customers and partners of the acquired companies or our customers and partners as a result of the integration of acquired operations;
•the impairment of relationships with employees of the acquired companies or our employees as a result of integration of new management personnel;
•entry into markets in which we have limited or no prior experience and in which our competitors have stronger market positions;
•dependence on unfamiliar employees, affiliates and partners;
•the amortization of acquired companies’ intangible assets;
•insufficient revenues to offset increased expenses associated with the acquisition;
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•inability to maintain our internal standards, controls, procedures and policies;
•reduction or replacement of the sales of existing services by sales of products and services from acquired business lines;
•potential loss of key employees of the acquired companies;
•difficulties integrating the personnel and cultures of the acquired companies into our operations;
•in the case of foreign acquisitions, uncertainty regarding foreign laws and regulations and difficulty integrating operations and systems as a result of cultural, systems and operational differences; and
•the impact of potential liabilities or unknown liabilities of the acquired businesses.
If any of these risks materialize, they could have a material adverse effect on our business, results of operations, financial condition and liquidity. In addition, any acquisition of other businesses or technologies may require us to seek debt or equity financing. Such financing might not be available to us on acceptable terms or at all. Market disruption and volatility, poor economic conditions in the capital markets and global economy could adversely impact our ability to obtain additional financing on favorable terms or at all.
Misappropriation or misuse of our intellectual property could harm our reputation, affect our competitive position and cost us money.
Our success and ability to compete are dependent in part on the strength of our intellectual property rights, the content included on our websites, the goodwill associated with our patents, trademarks, trade names and service marks, and on our ability to use U.S. and foreign laws to protect them. Our intellectual property includes, among other things, the content included on our websites, our logos, brands, domain names, a patent, the technology that we use to deliver our products and services, the various databases of information that we maintain and make available and the appearance of our websites. We claim common law protection on certain names and marks that we have used in connection with our business activities and the content included on our websites. We also own a number of registered or applied-for trademarks and service marks that we use in connection with our business, including DICE and CLEARANCEJOBS.COM, some of which we have acquired through business acquisitions. Although we generally pursue the registration of material service marks and other material intellectual property we own, where applicable, we have copyrights, trademarks and/or service marks that have not been registered in the United States and/or other jurisdictions. We generally enter into confidentiality and work-for-hire agreements with our employees, consultants, and vendors to protect our intellectual property rights. We also seek to control access to and distribution of our technology, documentation and other proprietary information as well as proprietary information licensed from third parties. Policing our intellectual property rights worldwide is a difficult task, and we may not be able to identify infringing users. The steps we have taken to protect our proprietary rights may not be adequate, and third parties could infringe, misappropriate or misuse our intellectual property rights. If this were to occur, it could harm our reputation and affect our competitive position. It could also require us to spend significant time and money in litigation. In addition, the laws of foreign countries do not necessarily protect intellectual property rights to the same extent as the laws of the United States. We have licensed in the past (on a royalty free basis), and expect to license in the future, various elements of our distinctive trademarks, service marks, trade dress, content and similar proprietary rights to third parties. We enter into strategic marketing arrangements with certain third-party web site operators pursuant to which we license our trademarks, service marks and content to such third parties in order to promote our brands and services and to generate leads to our websites. While we attempt to ensure that the quality of our brands is maintained by these licensees, we cannot assure you that third-party licensees of our proprietary rights will always take actions to protect the value of our intellectual property and reputation, and if they fail to do so, such failure could adversely affect our business and reputation.
If our business fails to attract and retain users, particularly users who create and post original content on our web properties, our financial results will be adversely affected.
Our reliance upon user-generated content requires that we develop and maintain tools and services designed to facilitate: creation of user-generated content, participation in discussion surrounding such user-generated content, evaluation of user-generated content, and distribution of user-generated content. If our development efforts fail to facilitate such activities on our web properties, the level of user engagement and interaction will not increase and may decline. Even if we succeed in facilitating such activities on our sites, there can be no assurance that such improvements will be deployed in a timely or cost-effective manner. If we fail to increase user engagement and interaction on our web properties, we will not attract and retain a loyal user base or the advertisers who desire to reach them, which will adversely affect our business and our ability to maintain or grow our revenue.
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We may be impacted by unfavorable decisions in proceedings related to future tax assessments.
We operate in a number of jurisdictions and are from time to time subject to audits and reviews by various taxation authorities with respect to income, payroll, sales and use, and other taxes for current and past periods. We may become subject to future tax assessments by various authorities. The determination of our provision for income taxes and current and deferred tax assets and liabilities requires judgment and estimation. There are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates are reasonable, the ultimate tax outcome may differ materially from the tax amounts recorded in our consolidated financial statements. Any amount we might be required to pay in connection with an ongoing audit or review or a future tax assessment may have a material adverse effect on our financial position, cash flows or overall results of operations.
Taxation risks could subject us to liability for past sales and cause our future sales to decrease.
We do not collect sales or use tax in certain jurisdictions on the services we provide. Our operations, and any future expansion of them, along with other aspects of our evolving business, may result in additional sales or use tax obligations.
Currently, the individual states’ laws and regulations determine which services performed over the Internet are subject to sales tax. A number of states have adopted initiatives that impose sales tax on certain services delivered electronically. Additionally, many states have implemented laws or regulations requiring out-of-state vendors to collect sales tax, which has increased our tax filing obligations. Also, a state may take the position that certain services we provide are subject to sales tax under existing regulations. The imposition by state and local governments of various taxes upon certain services delivered over the Internet could create administrative burdens for us, put us at a competitive disadvantage if they do not impose similar obligations on all of our online competitors and potentially decrease our future sales.
Because we recognize most of our revenue from our contracts over the term of the agreement, a significant downturn in these businesses may not be immediately reflected in our operating results.
We recognize revenue from sales of our recruiting contracts over the terms of the agreements, which, on average, is approximately 12 months, meaning a significant portion of the revenue we report in each quarter is generated from agreements entered into during previous quarters. Consequently, a decline in new or renewed agreements in any one quarter may not significantly impact our revenue in that quarter but may, instead, negatively affect our revenue in future quarters. In addition, we may be unable to adjust our fixed costs in response to reduced revenue. Accordingly, the effect of significant declines in the sales of these offerings may not be reflected in our short-term results of operations.
Risks Related to Our Indebtedness
We have indebtedness which could affect our financial condition, and, if adverse changes in the credit markets occur, we may not be able to borrow funds under our revolving credit facility or refinance our indebtedness.
As of December 31, 2022, we had $30.0 million of outstanding indebtedness under our credit agreement dated June 10, 2022 (the “Credit Agreement”) and the facility provides capacity for us to borrow an additional $70.0 million, subject to the terms of the Credit Agreement. If we cannot generate sufficient cash flow from operations to service our debt, we may need to further refinance our debt, dispose of assets or issue equity to obtain necessary funds. We do not know whether we will be able to take any of these actions, if necessary, on a timely basis or on terms satisfactory to us or at all.
Our Credit Agreement consists of a revolving facility and matures in June 2027. The funding of the revolving facility is dependent on a number of financial institutions. It is possible that one or more of the lenders will refuse or be unable to satisfy their commitment to lend to us should we need to borrow funds under the revolving credit facility. If borrowings are unavailable to us and we cannot generate sufficient revenues to fund our operations, our business will be adversely affected. In addition, the inability to borrow could hinder growth if we need funds to complete an acquisition. Our indebtedness could limit our ability to: obtain necessary additional financing for working capital, capital expenditures or other purposes in the future; plan for, or react to, changes in our business and the industries in which we operate; make future acquisitions or pursue other business opportunities; or react in an extended economic downturn.
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The terms of our Credit Agreement may restrict our current and future operations, which would adversely affect our ability to respond to changes in our business and to manage our operations.
Our Credit Agreement contains, and any future indebtedness of ours would likely contain, a number of restrictive covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things:
•incur additional debt;
•pay dividends and make other restricted payments;
•repurchase our own shares;
•create liens;
•make investments and acquisitions;
•engage in sales of assets and subsidiary stock;
•enter into sale-leaseback transactions;
•enter into transactions with affiliates;
•transfer all or substantially all of our assets or enter into merger or consolidation transactions; and
•make capital expenditures.
Our Credit Agreement also requires us to maintain certain financial ratios. A failure by us to comply with the covenants or financial ratios contained in our Credit Agreement could result in an event of default under our Credit Agreement which could adversely affect our ability to respond to changes in our business and manage our operations. In the event of any default under our Credit Agreement, the lenders under our Credit Agreement will not be required to lend any additional amounts to us. Our lenders also could elect to declare all amounts outstanding to be due and payable and require us to apply all of our available cash to repay these amounts. If the indebtedness under our Credit Agreement were to be accelerated, there can be no assurance that our assets would be sufficient to repay this indebtedness in full.
Despite our current level of indebtedness, we may be able to incur substantially more debt, which could increase the risks to our financial condition described above.
We may be able to incur substantial additional indebtedness in the future. Although the Credit Agreement contains restrictions on the incurrence of additional indebtedness and entering into certain types of other transactions, these restrictions are subject to a number of qualifications and exceptions, including compliance with various financial conditions. Additional indebtedness incurred in compliance with our existing debt could be substantial. To the extent new debt is added to our current debt levels, the substantial leverage risks described in the immediately preceding risk factors would increase. As of December 31, 2022, we had $30 million in total indebtedness with additional borrowing capacity of $70 million, 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.
Risks Related to Our Technology
Issues in the development and use of artificial intelligence ("AI") may result in reputational harm or liability.
We are incorporating AI into some of our offerings. This AI may be developed by the Company or others. We expect these elements of our business to grow. We envision a future in which AI's incorporation into our products helps our customers be more productive in their work. As with many innovations, AI presents risks and challenges that could affect its adoption, and therefore our business. AI algorithms may be flawed. Datasets may be insufficient or contain biased information. Content generated by AI systems may be offensive, illegal, or otherwise harmful. Ineffective or inadequate AI development or deployment practices by the Company or others could result in incidents that impair the acceptance of AI solutions or cause harm to individuals or society. These deficiencies and other failures of AI systems could subject us to competitive harm, regulatory action, legal liability, and brand or reputational harm. Some AI scenarios present ethical issues or may have broad impacts on society. If we enable or offer AI solutions that have unintended consequences or are controversial because of their impact on human rights, privacy, employment, or other social, economic, or political issues, we may experience brand or reputational harm.
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We may not timely and effectively scale and adapt our existing technology and network infrastructure to ensure that our websites are accessible within an acceptable load time.
A key element to our continued growth is the ability of our users (whom we define as anyone who visits our website, regardless of whether or not they are a customer), enterprises and professional organizations in all geographies to access our website within acceptable load times. We call this “website performance.” We have experienced, and may in the future experience, website disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of users accessing our website simultaneously, and denial of service or fraud or security attacks. In some instances, we may not be able to identify the cause or causes of these website performance problems within an acceptable period of time. It may become increasingly difficult to maintain and improve our website performance, especially during peak usage times and as our solutions become more complex and our user traffic increases. If our websites are unavailable when users attempt to access them or do not load as quickly as they expect, users may seek other websites to obtain the information for which they are looking, and may not return to our websites as often in the future, or at all. This would negatively impact our ability to attract customers, enterprises and professional organizations and increase engagement on our websites. We expect to continue to make significant investments to maintain and improve website performance and to enable rapid releases of new features and products. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be harmed.
Capacity constraints, systems failures or breaches of our network security could materially and adversely affect our business. If we fail to manage our technical operations infrastructure, our existing customers may experience services outages, and our new customers may experience delays in the deployment of our solution.
We derive almost all of our revenues from the purchase of recruitment products and services and employment advertising offered on our Dice and ClearanceJobs websites. As a result, our operations depend on our ability to maintain and protect our website services, most of which are housed within Amazon Web Services. System failures, including network, software or hardware failures, which cause interruption or an increase in response time of our services, could substantially decrease usage of our services and could reduce the attractiveness of our services to both our customers and professionals. An increase in the volume of queries conducted through our services could strain the capacity of the software or hardware we employ. This could lead to slower response times or system failures and prevent users from accessing our websites for extended periods of time, thereby decreasing usage and attractiveness of our services. Our technology operations are dependent in part on our ability to protect our operating systems against, among other events:
•physical damage from acts of God;
•terrorist attacks or other acts of war;
•power loss;
•telecommunications failures;
•network, hardware or software failures;
•physical and electronic break-ins;
•cyber security attacks;
•computer viruses or worms;
•identity theft;
•phishing attempts; and
•similar events.
Although we maintain insurance against fires, floods, cyber-attacks, and general business interruptions, the amount of coverage may not be adequate in any particular case. Furthermore, the occurrence of any of these events could result in interruptions, delays or cessations in service to users of our services, which could materially impair or prohibit our ability to provide our services and significantly impact our business.
Additionally, overall Internet usage could decline if any well-publicized compromise of security occurs or if there is a perceived lack of security of personal and corporate information stored within our systems to facilitate hiring and recruitment business processes. “Hacking” involves efforts to gain unauthorized access to information or systems or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, and online job boards, in
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particular, have been targeted by hackers who seek to gain unauthorized access to job seeker and customer data for purposes of implementing “phishing” or other schemes. Despite our implementation of numerous security measures; including access controls, network security, information security risk management processes, software development security, cryptography, operational security, business continuity and disaster recovery, and physical security, our websites, servers, our databases and other systems as well as those of our customers may be vulnerable to computer hackers, physical or electronic break-ins, sabotage, computer viruses, worms, phishing attacks and similar disruptions from unauthorized tampering with our computer systems.
Our systems, like the systems of many other websites, have been targeted in the past in cyber-attacks and hacks and will continue to be subject to such attacks. While such targets and hacks have not had material impacts on our results of operations and financial condition in the past, we cannot guarantee that similar attacks will not have such material impacts in the future. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, such techniques often are not recognized until launched against a target and may originate from less regulated and remote areas around the world, we may be unable to proactively address these techniques or to implement adequate preventative measures. We will continue to review and enhance our security measures in an attempt to prevent unauthorized and unlawful intrusions, although in the future it is possible we may not be able to prevent all intrusions, and such intrusions could result in our network security or computer systems being compromised and possibly result in the misappropriation or corruption of proprietary or personal information or cause disruptions in our services. We might be required to expend significant capital and resources to protect against, remediate or alleviate problems caused by such intrusions. We may also not have a timely remedy against a hacker who is able to penetrate our network security.
Our networks could also be affected by viruses or malware or other similar disruptive problems, and we could inadvertently transmit these viruses or malware to our users or other third parties. Our hardware and back-up systems could fail causing our services to be interrupted. Our customers may fall prey to successful phishing attacks and inadvertently give unauthorized access to view our candidate profiles. Any of these occurrences, and negative publicity arising from any such occurrences, could harm our business or give rise to a cause of action against us. Our general business interruption insurance policies have limitations with respect to covering interruptions caused by computer viruses or hackers. We have not added specific insurance coverage to protect against these risks. Our activities and the activities of third party contractors involve the storage, use and transmission of proprietary and personal information, including personal information collected from professionals who use our websites. Accordingly, security breaches could expose us to a risk of loss or litigation and possibly liabilities. We cannot assure that contractual provisions attempting to limit our liability in these areas will be successful or enforceable, or that other parties will accept such contractual provisions as part of our agreements. Any security breaches or our inability to provide users with continuous access to our networks could materially impact our ability to provide our services as well as materially impact the confidence of our customers in our services, either of which could have a material adverse effect on our business.
If our users or customers do not find our candidate profiles useful, it could adversely impact demand for our products and services and the growth of our business.
Our product integrates publicly available data on the Internet to create aggregated profiles of prospective candidates’ professional experience and other employment-related data. These profiles are made available to our customers through our TalentSearch product to help them identify prospective technical candidates in a way that reduces their need to search multiple websites, while delivering more relevant candidates and useful employment information to recruiters and employers that use it. Candidates sought out through the socially aggregated profiles may not be interested in the opportunities presented to them by the recruiters and employers who use the product, which could decrease its demand.
If Internet search engines’ methodologies are modified or our search result page rankings decline for other reasons, our user engagement could decline.
We depend in part on various Internet search engines, such as Google, Bing and Yahoo!, to direct a significant amount of traffic to our websites. Our ability to maintain the number of visitors directed to our websites is not entirely within our control. Our competitors’ search engine optimization, or SEO, efforts may result in their websites receiving a higher search result page ranking than ours, or Internet search engines could revise their methodologies in an attempt to improve their search results, which could adversely affect the placement of our search result page ranking. If search engine companies modify their search algorithms in ways that are detrimental to our new user growth or in ways that make it harder for our users to use our websites, or if our competitors’ SEO efforts are more successful than ours, overall growth in our user base could slow, user engagement could decrease, and we could lose existing users. These modifications may be prompted by search engine companies entering
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the online professional networking market or aligning with competitors. Our websites have experienced fluctuations in search result rankings in the past, and we anticipate similar fluctuations in the future. Any reduction in the number of users directed to our websites would harm our business and operating results.
We may not be able to halt the operations of websites that aggregate our data as well as data from other companies, including social networks, or copycat websites that have misappropriated our data in the past or may misappropriate our data in the future. These activities could harm our brand and our business.
From time to time, third parties have misappropriated our data through website scraping, robots or other means and aggregated this data on their websites with data from other companies. In addition, “copycat” websites have misappropriated data on our network and attempted to imitate our brand or the functionality of our websites. These activities could degrade our brands and harm our business. When we have become aware of such websites, we have employed technological or legal measures in an attempt to halt their operations. However, we may not be able to detect all such websites in a timely manner and, even if we could, technological and legal measures may be insufficient to stop their operations. In some cases, particularly in the case of websites operating outside of the United States, our available remedies may not be adequate to protect us against such websites. Regardless of whether we can successfully enforce our rights against these websites, any measures that we may take could require us to expend significant financial or other resources.
We rely on the services of third-party data center hosting facilities. Interruptions or delays in those services could impair the delivery of our service and harm our business.
Our Dice and ClearanceJobs website applications utilize cloud computing technology. It is hosted pursuant to service agreements on technology platforms by third-party service providers, primarily through Amazon Web Services. We do not control the operation of these providers or their facilities, and the facilities are vulnerable to damage, interruption or misconduct. Unanticipated problems at these facilities could result in lengthy interruptions in our services. If the services of one or more of these providers are terminated, disrupted, interrupted or suspended for any reason, we could experience disruption in our ability to provide our services, which may harm our business and reputation. Further, any damage to, or failure of, the cloud services we use could result in interruptions in our services. Interruptions in our service may damage our reputation, reduce our revenue, cause us to issue credits or pay penalties, cause customers to terminate their agreements and adversely affect our renewal rates and our ability to attract new customers. While we believe our application and network architecture and use of multiple availability zones and regions within Amazon Web Services reduce our risk, our business would be harmed if our customers and potential customers believe our services are unreliable.
Regulatory Risks
We may be liable with respect to the collection, storage, and use of the personal and professional information of the professionals, who use our websites and our current practices may not be in compliance with proposed new laws and regulations.
Our business depends on our ability to collect, store, use, and disclose personal and professional data from the professionals who use our websites. Our policies concerning the collection, use and disclosure of personally identifiable information are described on our websites. In recent years, class action lawsuits have been filed and the Federal Trade Commission and state agencies have commenced investigations with respect to the collection, use, sale and storage by various Internet companies of users’ personal and professional information. While we believe we are in compliance with current law, we cannot ensure that we will not be subject to lawsuits or investigations for violations of law. Moreover, our current practices regarding the collection, storage and use of user information may not be in compliance with currently pending legislative and regulatory proposals by the United States federal government and various state governments intended to limit the collection and use of user information. While we have implemented and intend to implement additional programs designed to enhance the protection of the privacy of our users, these programs may not conform to all or any of these laws or regulations and we may consequently incur civil or criminal liability for failing to conform. As a result, we may be forced to change our current practices relating to the collection, storage and use of user information. Our failure or our perceived failure to comply with laws and regulations could also lead to adverse publicity and a loss of consumer confidence if it were known that we did not take adequate measures to assure the confidentiality of the personally identifiable information that our users had given to us. This could result in a loss of customers and revenue and materially adversely impact the success of our business. Concern among prospective customers and professionals regarding our use of personal information collected on our websites, such as credit card numbers, email
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addresses, phone numbers and other personal information, could keep prospective customers from using our career services websites. Internet-wide incidents or incidents with respect to our websites or databases, including misappropriation of our users’ personal information, penetration of our network security, or changes in industry standards, regulations or laws could result in regulatory penalties, liability to the persons whose information was compromised, as well as legal expenses, and could deter people from using the Internet or our websites to conduct transactions that involve confidential information, which could have a material adverse impact on our business. We generally comply with industry standards and are subject to the terms of our privacy policies and privacy-related obligations to third parties (including voluntary third-party certification bodies such as TrustArc). We strive to comply with all applicable laws, policies, legal obligations and industry codes of conduct relating to privacy and data protection, to the extent possible. However, it is possible that these obligations may be interpreted and applied in new ways and/or in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices or that new regulations could be enacted.
We continue to see increased regulation of data privacy and security, including the adoption of more stringent subject matter specific state laws and national laws regulating the collection and use of data, as well as security and data breach obligations. For example, California adopted the California Consumer Privacy Act of 2018, or CCPA, which became effective on January 1, 2020 and was recently replaced and expanded upon by the California Privacy Rights Act, or CPRA, which was enacted on November 3, 2020 and went into effect on January 1, 2023. The CCPA established a new privacy framework for covered businesses by, among other things, creating an expanded definition of personal information, establishing new data privacy rights for consumers in the State of California and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches. The CPRA expanded on these protections by introducing new limitations on the sale or sharing of consumers' personal information and the creation of a new state agency to enforce its protections.
The uncertainty and changes in the requirements of multiple jurisdictions may increase the cost of compliance, reduce demand for our websites, restrict our ability to offer services in certain locations or subject us to sanctions by state or national data protection regulators, all of which could harm our business, financial condition, and results of operations. Failure to provide adequate privacy protections and maintain compliance with the new data privacy laws, including the CPRA, could have a material adverse effect on our financial condition and results of operations.
Our business is subject to U.S. government regulation of the Internet and taxation, which may have a material adverse effect on our business.
Congress and various state and local governments have passed legislation that regulates various aspects of the Internet, including content, copyright infringement, user privacy, taxation, access charges, liability for third-party activities and jurisdiction. In addition, federal, state, and local governmental organizations are also considering legislative and regulatory proposals that would regulate the Internet. Areas of potential regulation include libel, pricing, quality of products and services and intellectual property ownership. A number of proposals have been made at the state and local level that would impose taxes on the sale of goods and services through the Internet. Such proposals, if adopted, could substantially impair the growth of commerce over the Internet and could adversely affect our business, future results of operations, financial condition and liquidity. We may be subject to restrictions on our ability to communicate with our customers through email, text messages and phone calls. Several jurisdictions have proposed or adopted privacy related laws that restrict or prohibit unsolicited email or “spam.” These laws may impose significant monetary penalties for violations. For example, the CAN-SPAM Act of 2003, or “CAN-SPAM,” imposes complex and often burdensome requirements in connection with sending commercial email. Among other requirements, CAN-SPAM obligates the sender of commercial emails to provide recipients with the right to "opt-out" of receiving future emails from the sender. In addition, some states have passed laws regulating commercial email practices that are significantly more restrictive and difficult to comply with than CAN-SPAM, some portions of which may not be preempted by CAN-SPAM. If we were found to be in violation of CAN-SPAM or applicable state laws governing email not preempted by CAN-SPAM, we could be required to pay large penalties, which would adversely affect our financial condition, harm our business operations and marketing efforts, injure our reputation and erode candidate and customer trust. The scope of those regulations is unpredictable.
Changes in laws or regulations that adversely affect the growth, popularity or use of the Internet, including laws impacting net neutrality, could decrease the demand for our service and increase our cost of doing business. Certain laws intended to prevent network operators from discriminating against the legal traffic that traverse their networks have been implemented in many jurisdictions. In others, the laws may be nascent or non-existent. Furthermore, favorable laws may change. Given uncertainty around these rules, including changing interpretations, amendments or repeal, coupled with potentially significant political and
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economic power of local network operators, we could experience discriminatory or anti-competitive practices that could impede our growth, cause us to incur additional expense or otherwise negatively affect our business.
Due to the global nature of the Internet, it is possible that the governments of other states and foreign countries might attempt to regulate its transmissions or prosecute us for violations of their laws. We might unintentionally violate such laws or such laws may be modified and new laws may be enacted in the future. Any such developments (or developments stemming from enactment or modification of other laws) may significantly harm our business, operating results and financial condition.
General Risk Factors
We may from time to time consider strategic alternatives that may enhance stockholder value, which may result in the use of a significant amount of our management resources or significant costs, and we may not be able to fully realize the potential benefits of any such transaction.
We may consider from time to time strategic alternatives to ensure the Company’s ownership structure optimizes the Company’s ability to achieve growth initiatives through its strategic plan and to maximize stockholder value. The consideration of strategic alternatives could result in, among other things, a sale, merger, consolidation or business combination, asset divestiture, partnering or other collaboration agreements, or potential acquisitions or recapitalizations, in one or more transactions, or continuing to operate with our current business plan and strategy. There can be no assurance that any review of strategic alternatives will result in the identification or consummation of any transaction. Although there would be uncertainty that considering any possible transaction would result in definitive agreements or the completion of such transaction, we may devote a significant amount of our management resources to analyzing and pursuing such a transaction, which could negatively impact our operations. In addition, we may incur significant costs in connection with seeking such transactions or other strategic alternatives regardless of whether the transaction is completed. In the event that we consummate a strategic alternative in the future, we cannot be certain that we would fully realize the potential benefit of such a transaction and cannot predict the impact that such strategic transaction might have on our operations or stock price. We do not undertake to provide updates or make further comments regarding the evaluation of strategic alternatives, unless otherwise required by law.
If we fail to attract or retain key executives and personnel, there could be a material adverse effect on our business.
Our performance is substantially dependent on the performance of senior management and key technical personnel. We have employment agreements, which include non-compete provisions, with all members of senior management and certain key technical personnel. However, we cannot assure you that any of these senior managers or others will remain with us or that they will not compete with us in the event they cease to be employees, which could have a material adverse effect on our business, results of operations, financial condition and liquidity. In addition, we have not purchased key person life insurance on any members of our senior management. Our future success also depends upon our continuing ability to identify, attract, hire and retain highly qualified personnel, including skilled technical, management, product and technology, and sales and marketing personnel, all of whom are in high demand and are often subject to competing offers. There has in the past been, and there may in the future be, a shortage of qualified personnel in the career services market. We also compete for qualified personnel with other companies. A loss of a substantial number of qualified employees, or an inability to attract, retain and motivate additional highly skilled employees required for expansion of our business, could have a material adverse effect on our business. In addition, the recent significant decline in our stock price may undermine the use of our equity as a retention tool and may make it more difficult to retain key personnel.
We may be adversely affected by cyclicality, volatility or an extended downturn in the United States or worldwide economies, in or related to the industries we serve.
Our revenues are generated primarily from servicing customers seeking to hire qualified professionals in the technology and security-cleared sectors. Demand for these professionals tends to be tied to economic and business cycles. Increases in the unemployment rate, specifically in the technology industry, cyclicality or an extended downturn in the economy could cause our revenues to decline. For example, during the recession in 2001, employers reduced or postponed their recruiting efforts, including their recruitment of professionals in the technology industry. The 2001 economic recession, coupled with the substantial indebtedness incurred by our predecessor, Dice Inc., resulted in Dice Inc. filing for Chapter 11 protection in 2003. As of December 2022, the seasonally unadjusted U.S. unemployment rate was 1.8% for computer-related occupations as compared to the overall national average of 3.5%, seasonally adjusted. The increase in unemployment and decrease in recruitment activity experienced during 2008 and 2009 resulted in decreased demand for our services. During 2009, we
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experienced a 29% decline in revenues compared to 2008. If an economic environment similar to those experienced during 2008 and 2009 returns, our ability to generate revenue may be adversely affected.
In addition, the general level of economic activity in the regions and industries in which we operate significantly affects demand for our services. When economic activity slows, many companies hire fewer employees. Therefore, our operating results, business and financial condition could be significantly harmed by an extended economic downturn or future downturns, especially in regions or industries where our operations are heavily concentrated. Further, we may face increased pricing pressures during such periods as customers seek to use lower cost or fee services. Additionally, the labor market and certain of the industries we serve have historically experienced short-term cyclicality. For example, if the demand for technology professionals decreases, it may be more difficult to sell recruitment packages to our customers. It is difficult to estimate the total number of passive or active job seekers or available job openings in the United States or abroad during any given period. If there is a labor shortage, qualified professionals may be less likely to seek our services, which could cause our customers to look elsewhere for attractive employees. Such labor shortages would require us to intensify our marketing efforts toward professionals so that professionals who post their resumes on our websites remain relevant to our customers, which would increase our expenses. Furthermore, if there is a shortage of available job openings in a particular region or sector we serve, the number of job postings on our websites could decrease, causing our business to be adversely affected. For example, during 2020, because of the impacts of the COVID-19 pandemic and its potential impact on future earnings and cash flows for the tech-focused reporting unit and those that are attributable to the Dice trademarks and brand name, the Company recorded impairment charges totaling $37.8 million.
Any economic downturn or recession in the United States or abroad for an extended period of time could have a material adverse effect on our business, financial condition, results of operations and liquidity. 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 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 a year.
Volatility in global financial markets may limit our ability to access capital markets at a time when we would like, or need, to raise capital, which could have an impact on our ability to react to changing economic and business conditions. Accordingly, if the domestic or global economies worsen or volatility occurs, our business, results of operations and financial condition could be materially and adversely affected.
We could be subject to infringement and other claims relating to our services or the content on our websites that may result in costly litigation, the payment of damages or the need to revise the way we conduct business.
We cannot be certain that our technology, offerings, services or content do not or will not infringe upon the intellectual property or other proprietary rights of third parties, or otherwise violate laws. From time to time we receive notices alleging potential infringement of intellectual property or other proprietary rights of third parties or non-compliance with applicable laws. In seeking to protect our marks, copyrights, domain names and other intellectual property rights, or in defending ourselves against claims of infringement or non-compliance that may or may not be without merit, we could face costly litigation and the diversion of our management’s attention and resources. Claims against us could result in the need to develop alternative trademarks, content, technology or other intellectual property or enter into costly royalty or licensing agreements, or substantially modify or cease to offer one or more of our services, which could have a material adverse effect on our business, results of operations, financial condition and liquidity. If we were found to have infringed on a third party’s intellectual property or other proprietary rights, or failed to comply with applicable laws, among other things, the value of our brands and our business reputation could be impaired, and our business could suffer.
If we are unable to enforce or defend our ownership or use of intellectual property, our business, competitive position and operating results could be harmed.
The success of our business depends in large part on our intellectual property rights, including existing and future trademarks and copyrights, which are and will continue to be valuable and important assets of our business. Our business could be harmed if we are not able to protect the content of our databases and our other intellectual property. We have taken measures to protect our intellectual property, such as requiring our employees and consultants with access to our proprietary information to execute confidentiality agreements. In the future, we may sue competitors or other parties who we believe to be infringing our intellectual property. We may in the future also find it necessary to assert claims regarding our intellectual property. These measures may not be sufficient or effective to protect our intellectual property. We also rely on laws, including those regarding copyrights and trademarks to protect our intellectual property rights. Current laws, or the enforceability of such laws,
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specifically in foreign jurisdictions, may not adequately protect our intellectual property or our databases and the data contained in them. In addition, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in Internet related businesses are uncertain and evolving, and we cannot assure you of the future viability or value of any of our proprietary rights. Others may develop technologies similar or superior to our technology. A significant impairment of our intellectual property rights could require us to develop alternative intellectual property, incur licensing or other expenses or limit our product and service offerings.
Global climate change, including extreme weather conditions, natural disasters, public health issues, or other events outside of our control, as well as related regulations, could negatively impact our operating results and financial condition.
The effects of climate change, natural disasters such as earthquakes, hurricanes, tsunamis, or other adverse weather and climate conditions, and public health issues like the COVID-19 pandemic, whether occurring in the U.S. or abroad, and the consequences and effects thereof, including have in the past and could in the future harm or disrupt our operations or the operations of our customers, or result in economic instability that may negatively impact our operating results and financial condition..
We have made a public commitment regarding our sourcing of renewable energy for our facilities regarding greenhouse gas Scope 2 emissions. Although we intend to meet these commitments, we may be required to expend significant resources to do so, which could increase our operational costs. Further, there can be no assurance of the extent to which our commitment will be achieved, or that any future investments we make in furtherance of achieving such target and goal will meet investor expectations or legal standards, if any, regarding sustainability performance. Moreover, we may determine that it is in the best interest of our Company and our stockholders to prioritize other business, social, governance or sustainable investments over the achievement of our current commitments based on economic, technological developments, regulatory and social factors, business strategy or pressure from investors, activist groups or other stakeholders. If we are unable to meet these commitments, then we could incur adverse publicity and reaction from investors, activist groups or other stakeholders, which could adversely impact the perception of us and our products and services by current and potential customers, as well as investors, which could in turn adversely impact our results of operations.
We incur increased costs and will continue to incur these costs as a result of being a public company.
As a public company, we have incurred and will continue to incur significant levels of legal, accounting and other expenses. In addition, the Sarbanes Oxley Act of 2002 (“Sarbanes Oxley”), the Dodd-Frank Act and related rules of the Securities and Exchange Commission (the “SEC”) and the NYSE regulate corporate governance practices of public companies and impose significant requirements relating to disclosure controls and procedures and internal control over financial reporting. Compliance with these public company requirements involves significant costs, the commitment of significant management resources, and is time consuming. We are required to expend considerable time and resources complying with public company regulations.
COVID-19 could continue to have an adverse impact on our business.
The spread of the COVID-19 pandemic caused an economic downturn on a global scale, as well as significant volatility in the financial markets. COVID-19 slowed recruitment activity for our businesses in 2020 and into the first half of 2021 as employers slowed hiring, which reduced our revenues and operating cash flows. The pandemic could negatively impact our future financial performance, but, based on information currently available, we are not anticipating a significant negative long-term impact on our business and operations, results of operations, financial condition, cash flows, liquidity and capital and financial resources. However, the situation is uncertain. The Company cannot at this time predict the ultimate impact that the COVID-19 pandemic will have on its financial condition and operations. In an effort to protect the health and safety of our employees, we have taken action to adopt certain policies at our office locations, including, at times, working from home, closing of our office locations where necessary, and suspending employee travel. We may have to take further actions that we determine are in the best interests of our employees or as required by federal, state, or local authorities.
The impact of the COVID-19 pandemic continues to unfold. The extent of the pandemic’s effect on our operational and financial performance will depend in large part on future developments, which cannot be predicted with confidence at this time. Future developments include the duration, scope and severity of the pandemic, new and unknown strains of the virus, potential actions taken to contain or mitigate its impact, and the continued development of treatments or additional vaccinations. While we expect the pandemic could negatively impact our financial performance in the future, due to the inherent uncertainty of the
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unprecedented and evolving situation, we may not be able to predict the likely impact of the COVID-19 pandemic on our future operations.
Risks Related to Ownership of Our Securities
If we do not meet the continued listing requirements of the NYSE our common stock may be delisted.
Our common stock is listed on the NYSE. The NYSE requires us to continue to meet certain listing standards, including standards related to the trading price of our common stock, as well as our global market capitalization. While we are currently in compliance with the NYSE continued listing requirements, we cannot assure you that we will remain in compliance. If we do not meet the NYSE’s continued listing standards, we will be notified by the NYSE and we will be required to take corrective action to meet the continued listing standards; otherwise our common stock will be delisted from the NYSE. A delisting of our common stock on the NYSE would reduce the liquidity and market price of our common stock and the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to access the public capital markets. A delisting would also reduce the value of our equity compensation plans, which could negatively impact our ability to retain key employees.
Our stock price has been volatile in the past and may be subject to volatility in the future.
The trading price of our common stock has been volatile in the past and could be subject to fluctuations in response to various factors, some of which are beyond our control. Factors such as announcements of variations in our quarterly financial results and fluctuations in revenue could cause the market price of our common stock to fluctuate. Fluctuations in the valuation of companies perceived by investors to be comparable to us or in valuation metrics, such as our price to earnings ratio, could impact our stock price. Additionally, the stock markets have at times experienced price and volume fluctuations that have affected and might in the future affect the market prices of equity securities of many companies. These fluctuations have, in some cases, been unrelated or disproportionate to the operating performance of these companies. Further, the trading prices of publicly traded shares of companies in our industry have been particularly volatile and may be very volatile in the future. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes, or political unrest, may negatively impact the market price of our common stock.
Failure to maintain effective internal control over financial reporting could have a material adverse effect on our business, operating results and stock price.
Maintaining effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important in helping to prevent financial fraud. If we are unable to maintain adequate internal controls, our business and operating results could be harmed. We are required to satisfy the requirements of Section 404 of Sarbanes Oxley and the related rules of the SEC, which require, among other things, our management to assess annually the effectiveness of our internal control over financial reporting and our independent registered public accounting firm to issue a report on that assessment. We may be unable to remedy deficiencies before the requisite deadlines for those reports. Any failure to remediate deficiencies noted by our independent registered public accounting firm or to implement required new or improved controls or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. If our management or our independent registered public accounting firm were to conclude in their reports that our internal control over financial reporting was not effective, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly.
The estimates and assumptions on which our financial projections are based may prove to be inaccurate, which may cause our actual results to materially differ from such projections, which may adversely affect our future profitability, cash flows and stock price.
Our financial projections, including any sales or earnings guidance or outlook we may provide from time to time, are dependent on certain estimates and assumptions related to, among other things, the demand for technology professionals, development and launch of innovative new products, market share projections, product pricing, sales, cost savings, accruals for estimated liabilities, and our ability to generate sufficient cash flow to reinvest in our existing business, fund internal growth, repurchase our stock, make acquisitions, invest in joint ventures, and meet debt obligations. Our financial projections are based on historical experience and on various other estimates and assumptions that we believe to be reasonable under the circumstances
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and at the time they are made, and our actual results may differ materially from our financial projections, especially in light of the increased difficulty in making such estimates and assumptions as a result of the current macroeconomic environment. Any material variation between our financial projections and our actual results may adversely affect our future profitability, cash flows and stock price.
We expect our operating results to fluctuate on a quarterly and annual basis.
Our revenue and operating results could vary significantly from quarter-to-quarter and year-to-year and may fail to match our past performance because of a variety of factors, some of which are outside of our control. Any of these events could cause the market price of our common stock to fluctuate. Factors that may contribute to the variability of our operating results include:
•the size and seasonal variability of our customers’ recruiting and marketing budgets;
•the emergence of new competitors in our market whether by established companies or the entrance of new companies;
•the cost of investing in our technology infrastructure may be greater than we anticipate;
•our ability to increase our customer base and customer and professional engagement;
•disruptions or outages in the availability of our websites, actual or perceived breaches of privacy and compromises of our customers’ or professionals’ data;
•changes in our pricing policies or those of our competitors;
•macroeconomic changes, in particular, deterioration in labor markets, which would adversely impact sales of our hiring solutions, or economic growth that does not lead to job growth, for instance increases in productivity;
•costs associated with data security which is becoming increasingly complex;
•the timing and costs of expanding our organization and delays or inability in achieving expected productivity;
•the timing of certain expenditures, including hiring of employees and capital expenditures;
•our ability to increase sales of our products and solutions to new customers and expand sales of additional products and solutions to our existing customers;
•the extent to which existing customers renew their agreements with us and the timing and terms of those renewals; and
•general industry and macroeconomic conditions.
Actions of activist shareholders could cause us to incur substantial costs, divert management's attention and resources, and have an adverse effect on our business.
We have been the subject of activity by activist shareholders in the past and shareholder activism generally is increasing. Responding to shareholder activism can be costly and time-consuming, disrupt our operations, and divert the attention of management and our employees from our strategic initiatives. Activist campaigns can create perceived uncertainties as to our future direction, strategy, or leadership and may result in the loss of potential business opportunities, harm our ability to attract new employees, investors, customers, and other partners, and cause our stock price to experience periods of volatility.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We do not own any properties. Our corporate headquarters is located at 6465 South Greenwood Plaza, Suite 400, Centennial, Colorado, where we lease approximately 28,000 square feet. We lease approximately 45,000 square feet of office space in Urbandale, Iowa, approximately 25,000 square feet in West Des Moines, Iowa, which will replace the Urbandale, Iowa facility in 2023, and 16,000 square feet of office space in New York, New York, of which 12,000 square feet was subleased during the third quarter of 2018. All of our properties are leased for our Tech-focused segment, which is our only reportable segment.
We believe that our facilities are adequate for current and anticipated future use, although we may from time to time lease additional facilities as operations require.
Item 3. Legal Proceedings
From time to time we may be involved in disputes or litigation relating to claims arising out of our operations. We are currently not a party to any material unrecorded pending legal proceedings. See also Note 12 of the notes to consolidated financial statements.
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Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is listed on the NYSE under the ticker symbol “DHX”.
Holders
As of December 31, 2022, there were 19 stockholders of record of our common stock. A significant number of the outstanding shares of common stock, which are beneficially owned by individuals and entities, are registered in the name of Cede & Co. Cede & Co. is a nominee of The Depository Trust Company, a securities depository for banks and brokerage firms.
Dividend Policy
We have not declared or paid any cash dividends on our stock as a public company. We currently anticipate that all future earnings will be retained by the Company to support our long-term growth strategy. Accordingly, we do not anticipate paying periodic cash dividends on our stock for the foreseeable future.
Furthermore, our Credit Agreement restricts the amount of cash dividends that we can pay.
The payment of any future dividends will be at the discretion of our board of directors and subject to the Credit Agreement and will depend upon, among other things, future earnings, operations, capital requirements, our general financial condition, compliance with covenants under any then-existing financing agreements, contractual restrictions and general business conditions.
Purchases of Equity Securities by the Issuer
Our board of directors approved a stock repurchase program that permitted the Company to repurchase our common stock. The following table summarizes the stock repurchase plans approved by the board of directors:
Under each plan, management has discretion in determining the conditions under which shares may be purchased from time to time. Subsequent to December 31, 2022, the Company's Board of directors announced a new stock repurchase program that permits the repurchase of up to $10 million of the Company's common stock through February 2024.
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During the three months ended December 31, 2022, purchases of our common stock pursuant to the Stock Repurchase Plans were as follows:
[1] No shares of our common stock were purchased other than through a publicly announced plan or program.
[2] Average price paid per share includes costs associated with the repurchases.
[3] On February 15, 2022, the Company announced that its Board of Directors approved a new stock repurchase program that permits the purchase of up to $15.0 million of the Company's common stock through February 2023. The number, price, structure, and timing of the repurchases, if any, will be at our sole discretion and future repurchases will be evaluated by us depending on market conditions, liquidity needs, restrictions under the agreements governing our indebtedness, and other factors. Share repurchases may be made in the open market or in privately negotiated transactions. The repurchase authorization does not oblige us to acquire any particular amount of our common stock. The Board of Directors may suspend, modify, or terminate the repurchase program at any time without prior notice.
Performance Graph
The following graph shows the total shareholder return of an investment of $100 in cash on December 31, 2017 through December 31, 2022 (the last trading day of our common stock on the NYSE in 2022) for (i) our common stock, (ii) the Russell 2000 and (iii) the Dow Jones Internet Composite Index, at the closing price on December 31, 2022. All values assume reinvestment of the full amount of all dividends, if any.
The returns shown on the graph do not necessarily predict future performance. The performance graph is not deemed “filed” with the SEC.
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Item 6. Reserved
None.
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.
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
None.
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.
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Recruitment Package Customers
Increase (Decrease) PercentChange
Recruitment Package Customers: December 31, 2022 December 31, 2021
Average Annual Revenue per Recruitment Package Customer (1)
FY 2022 FY 2021 Increase (Decrease) PercentChange
Dice had 6,311 recruitment package customers as of December 31, 2022, which was an increase of 307, or 5%, year over year and average revenue per recruitment package customer for Dice increased 7% for the year ended December 31, 2022. The increases were driven by strong renewal rates and new business customers. ClearanceJobs had 2,064 recruitment package customers as of December 31, 2022 compared to 1,878 as of December 31, 2022, an increase of 10%, and average revenue per recruitment package customer increased 12%. The increases for ClearanceJobs were 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:
(in thousands, except percentages)
Backlog at December 31, 2022 increased $24.6 million from December 31, 2021 due to the strong technology recruitment market driving bookings growth for both Dice and ClearanceJobs, investments in product, sales and marketing and a focus on signing multi-year contracts.
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.
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Product Releases
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 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, 2022 resulted in the fair value of the reporting unit being substantially in excess of the carrying value with fair value exceeding the carrying value by 154%. Results for the Tech-focused reporting unit for the fourth quarter of 2022 and estimated future results as of December 31, 2022 approximate the projections used in the October 1, 2022 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, 2022. Therefore, no quantitative impairment test was performed as of December 31, 2022.
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During the third quarter of 2020, the impacts of the COVID-19 pandemic continued and the Company's projected earnings and cash flows for the Tech-focused reporting unit declined as compared to the projections used in the March 31, 2020 analysis. As a result, the Company performed an interim impairment analysis as of September 30, 2020, which resulted in the Company recording an impairment charge of $23.6 million during the three month period ended September 30, 2020. No impairment was recorded during the years ended December 31, 2022 and 2021.
The amount of goodwill as of December 31, 2022 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, 2022 analysis was 11.0%. 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, uncertainty related to COVID-19, 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 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, 2022 resulted in the fair value of the Dice trademarks and brand name exceeding the carrying value by 137%. The Company's operating results attributable to the Dice trademarks and brand name for the fourth quarter of 2022 and estimated future results as of December 31, 2022 approximate the projections used in the October 1, 2022 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, 2022. Therefore, no quantitative impairment test was performed as of December 31, 2022. No impairment was recorded during the years ended December 31, 2022 and 2021.
During the first quarter of 2020, because of the initial impacts of the COVID-19 pandemic and its potential impact on future earnings and cash flows that are attributable to the Dice trademarks and brand name, the Company performed an interim impairment analysis. As a result of the analysis, the Company recorded an impairment charge of $7.2 million during the first
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quarter of 2020. During the third quarter of 2020, the impacts of the COVID-19 pandemic continued and the Company's projected earnings and cash flows that are attributable to the Dice trademarks and brand name declined as compared to the projections used in the March 31, 2020 analysis. As a result, the Company performed an interim impairment analysis as of September 30, 2020, which resulted in the Company recording an additional impairment charge of $8.0 million during the three month period ended September 30, 2020.
The projections utilized in the October 1, 2022 analysis included increasing revenues at rates approximating industry growth projections. The Company’s ability to achieve these revenue projections may be impacted by, among other things, uncertainty related to COVID-19, 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. The October 1, 2022 analysis included operating margins during the year ending December 31, 2022 that approximate operating margins for the year ended December 31, 2021 and then increasing modestly. 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, 2022 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 12.0%.
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, operating expense trends and capital expenditure requirements. Changes in our strategy, uncertainty related to COVID-19, 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
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, 2022, 2021 and 2020. Consolidated operating results in dollars and as a percent of revenue follows:
For the year ended December 31,
Operating expenses:
Impairment of intangible assets — — 15,200 — (15,200)
Other operating income:
Proceeds from settlement 2,061 — — 2,061 —
For the year ended December 31,
Operating expenses:
General and administrative 22.7 % 23.8 % 24.0 %
Impairment of intangible assets — % — % 13.7 %
Impairment of goodwill — % — % 20.3 %
Impairment of right-of-use asset — % 1.6 % — %
Other operating income:
Proceeds from settlement 1.4 % — % — %
Operating income (loss) 3.7 % (1.5) % (29.1) %
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Comparison of Years Ended December 31, 2022 and 2021
Revenues
Year Ended December 31, Increase (Decrease) PercentChange
(in thousands, except percentages)
(1) Includes Dice and Career Events.
We experienced an increase in revenue of $29.8 million, or 24.8%. Revenue at Dice increased by $20.7 million, or 24.0%, compared to the same period of 2021 due to improvements in renewal rates and new business activity along with increasing customer counts, which drives additional revenue. Revenues for ClearanceJobs increased by $9.1 million, or 27.0%, as compared to the same period of 2021, 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 PercentChange
(in thousands, except percentages)
Percentage of revenues 11.8 % 12.6 %
Cost of revenues increased by $2.5 million, or 16.7%, driven by an increase of $1.8 million from higher compensation related costs, primarily from higher headcount. Operational costs, including the amortization of cloud computing and consulting costs, increased by $0.7 million.
Product Development Expenses
Year Ended December 31, Increase PercentChange
(in thousands, except percentages)
Percentage of revenues 11.8 % 13.4 %
Product development expenses increased $1.7 million, or 10.3%, driven by an increase of $5.0 million from higher compensation related costs, primarily due to higher headcount, partially offset by an increase in capitalized labor of $3.8 million, which decreases operating expenses. Additionally, operational costs, including consulting, education and training costs, increased by $0.5 million.
Sales and Marketing Expenses
Year Ended December 31, Increase PercentChange
(in thousands, except percentages)
Percentage of revenues 39.7 % 36.4 %
Sales and marketing expenses increased $15.7 million, or 35.8%, from the same period in 2021. The increase was primarily driven by $9.4 million increase in compensation related costs due to increased headcount and higher quota attainment versus sales plan, and a $5.1 million increase in discretionary marketing expenses supporting the growth in the sales team, and a $1.1 million increase in operational costs, including company events, credit card fees, and hotel and travel.
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General and Administrative Expenses
Year Ended December 31, Increase PercentChange
(in thousands, except percentages)
Percentage of revenues 22.7 % 23.8 %
General and administrative costs increased $5.5 million or 19.1%, primarily due to an increase in compensation related costs of $3.7 million, which includes a $1.8 million increase in stock-based compensation. The increase in compensation expense is primarily due to higher achievement against targets for the Company's bonus and stock-based compensation plans. Operational costs, including bad debt expense and consulting increased by $1.8 million.
Depreciation
Year Ended December 31, Increase PercentChange
(in thousands, except percentages)
Percentage of revenues 11.7 % 13.6 %
Depreciation expense increased $1.1 million or 7.0% from the same period in 2021, in connection with increasing internal development costs driving higher depreciation.
Impairment of right-of-use asset
Year Ended December 31, Decrease PercentChange
(in thousands, except percentages)
Impairment of right-of-use asset $ — $ 1,919 $ (1,919) (100.0) %
Percentage of revenues — % 1.6 %
During the third quarter of 2021, due to the continuing impacts of COVID-19 on the real estate markets and its impact on the future cash flows attributable to its right-of-use ("ROU") assets, the Company performed an impairment analysis of a sublease within its ROU assets. As a result, the Company recorded an impairment charge of $1.9 million during the third quarter of 2021, which did not reoccur in 2022.
Proceeds from settlement
Year Ended December 31, Increase PercentChange
(in thousands, except percentages)
Proceeds from settlement $ 2,061 $ — $ 2,061 — %
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 PercentChange
(in thousands, except percentages)
Percentages of revenues 3.7 % (1.5) %
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Operating income for the year ended December 31, 2022 was $5.6 million, a margin of 3.7%, compared to operating loss of $1.8 million, a negative margin of 1.5%, for the same period in 2021. The increase in operating income and improved percentage margin was driven by higher revenues and proceeds from settlement, partially offset by higher operating costs as the Company invests in its product and sales and marketing for future growth.
Income from equity method investment
Year Ended December 31, Increase PercentChange
(in thousands, except percentages)
Percentage of revenues 1.1 % 0.2 %
During the years ended December 31, 2022 and 2021, the Company recorded $1.6 million and $0.2 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. The increase of $1.4 million is primarily due to the 2022 period reflecting a full year of activity.
Impairment of investment
Year Ended December 31, Decrease PercentChange
(in thousands, except percentages)
Impairment of investment $ (2,300) $ — $ (2,300) — %
Percentage of revenues (1.5) % — %
During the third quarter of 2022, the Company recognized a $2.3 million loss related to an impairment of a subordinated convertible promissory note as further described in Note 7 of the notes to consolidated financial statements.
Gain on investment
Year Ended December 31, Decrease PercentChange
(in thousands, except percentages)
Percentage of revenues 0.2 % 1.0 %
During the second quarter of 2022, the Company recognized a $0.3 million gain from the sale of its 40% common share interest in Rigzone. The gain on investment of $1.2 million for the year ended December 31, 2021 relates to a minority interest representing less than 1% of the common stock of a technology company that became publicly traded during the first quarter of 2021 after its initial public offering. The Company sold 100% of this investment during the third quarter of 2021. See also Note 7 of the notes to consolidated financial statements.
Interest Expense and Other
Year Ended December 31, Increase PercentChange
(in thousands, except percentages)
Percentage of revenues 1.1 % 0.6 %
Interest expense and other increased by $0.9 million, or 136.9%, from the same period in 2021 due to higher debt outstanding under the Credit Agreement during the current period and higher interest rates.
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Income Taxes
Year Ended December 31,
(in thousands, exceptpercentages)
Income (loss) before income taxes $ 3,597 $ (1,031)
Effective tax rate (16.1) % 61.0 %
A reconciliation between the income tax expense (benefit) at the federal statutory rate and the reported income tax benefit is summarized as follows:
Year Ended December 31,
Federal statutory rate $ 755 $ (216)
Gain on sale of businesses or investments — (251)
Stock-based compensation (1,130) (84)
State tax expense, net of federal effect 139 110
Change in accrual for unrecognized tax benefits (16) (155)
Research and development tax credits (763) (478)
Income from equity method investment (335) —
Change in valuation allowance 555 —
Income tax benefit $ (579) $ (629)
Our effective income tax rate was (16.1)% and 61.0% for the years ended December 31, 2022 and 2021, respectively. 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. The 2021 tax rate differed from the federal statutory rate primarily because of the utilization of a capital loss carryforward to offset a gain on an investment; deduction limitations on executive compensation; and tax credits for research and development.
Income (loss) from discontinued operations, net of tax
For the year ended December 31, Increase PercentChange
(in thousands, except percentages)
Loss from discontinued operations, net of tax $ — $ (29,340) $ 29,340 (100) %
Percentage of revenues — % (24.5) %
During the second quarter of 2021, the Company transferred majority ownership of its eFC business to eFC management and has recorded it as a discontinued operation. As a result, the Company experienced a loss from discontinued operations, net of tax, of $29.3 million. The loss was comprised of $28.1 million related to the reclassification of currency translation adjustments and $5.2 million from the removal of eFC's net assets. The loss was partially offset by the recording of an equity method investment of $3.6 million and eFC's earnings during the period.
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Earnings per Share
Year Ended December 31,
(in thousands, exceptper share amounts)
Income (loss) from continuing operations $ 4,176 $ (402)
Loss from discontinued operations, net of tax — (29,340)
Weighted-average shares outstanding - basic 44,274 46,333
Weighted-average shares outstanding - diluted 46,533 46,333
Diluted earnings (loss) per share - continuing operations $ 0.09 $ (0.01)
Diluted earnings (loss) per share - discontinued operations $ — $ (0.63)
Diluted earnings (loss) per share $ 0.09 $ (0.64)
Diluted earnings (loss) per share from continuing operations was $0.09 and $(0.01) for the years ended December 31, 2022 and 2021, respectively. The improvement in the 2022 period was primarily driven by higher revenues, partially offset by higher operating costs as the Company invests in its product and sales and marketing for future growth. The prior year loss was driven by an ROU asset impairment and higher depreciation expense partially offset by gain on investment. Diluted earnings (loss) per share was $0.09 and $(0.64) for the years ended December 31, 2022 and 2021, respectively. The prior year loss per share was driven by the loss from discontinued operations.
Comparison of Years Ended December 31, 2021 and 2020
Revenues
Year Ended December 31, Increase (Decrease) PercentChange
(in thousands, except percentages)
(1) Includes Dice and Career Events
We experienced an increase in revenue of $8.7 million, or 7.9%. Revenue at Dice increased by $4.1 million, or 4.9%, compared to the same period in 2020 due to improvements in renewal rates and new business activity along with consistently increasing customer counts during 2021, which drives additional revenue in future periods. Revenues for ClearanceJobs increased by $4.7 million, or 16.1%, as compared to the same period of 2020, 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 PercentChange
(in thousands, except percentages)
Percentage of revenues 12.6 % 12.9 %
Cost of revenues increased by $0.8 million, or 5.6%, driven by an increase of $0.4 million associated with web hosting and cloud computing, consistent with the Company's investment in its products and tools to enhance sales processes. The Company also experienced a $0.4 million increase in headcount related costs.
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Product Development Expenses
Year Ended December 31, Increase PercentChange
(in thousands, except percentages)
Percentage of revenues 13.4 % 13.4 %
Product development expenses increased $1.1 million or 7.6%. Within product development, the Company experienced a decrease in capitalized labor of $0.7 million, which increased expense, along with an increase in consulting costs of $0.3 million.
Sales and Marketing Expenses
Year Ended December 31, Increase PercentChange
(in thousands, except percentages)
Percentage of revenues 36.4 % 35.7 %
Sales and marketing expenses increased $4.0 million, or 10.1%, from the same period in 2020. The increase was primarily driven by $2.4 million increase in compensation related costs due to increased headcount and higher quota attainment versus sales plan, and a $1.5 million increase in discretionary marketing expenses as customer recruitment activity rebounded.
General and Administrative Expenses
Year Ended December 31, Increase PercentChange
(in thousands, except percentages)
Percentage of revenues 23.8 % 24.0 %
General and administrative costs increased $2.0 million or 7.4%, primarily due to an increase in compensation related costs of $2.9 million with business performance driving achievement for the bonus and stock-based compensation plans. This was partially offset by lower bad debt expense of $0.7 million.
Depreciation
Year Ended December 31, Increase PercentChange
(in thousands, except percentages)
Percentage of revenues 13.6 % 9.2 %
Depreciation expense increased $6.1 million or 59.3%, from the same period in 2020, in connection with increasing internal development costs during 2019 and 2020 that were then placed in service, primarily in late 2020, and depreciated. Internal development costs are reflected as purchases of fixed assets in the consolidated statements of cash flows.
Impairment of intangible assets
Year Ended December 31, Decrease PercentChange
(in thousands, except percentages)
Percentage of revenues — % 13.7 %
The Company has an indefinite-lived acquired intangible asset related to the Dice trademarks and brand name. During the first and third quarters of 2020, because of the impacts of the COVID-19 pandemic, the Company performed an interim impairment
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analysis of the Dice trademarks and brand name. As a result of the analysis, the Company recorded an impairment charge of $15.2 million during the nine months ended September 30, 2020. See also Note 9 of the notes to consolidated financial statements.
Impairment of goodwill
Year Ended December 31, Decrease PercentChange
(in thousands, except percentages)
Percentage of revenues — % 20.3 %
During the third quarter of 2020, because of the impacts of COVID-19 pandemic, the Company performed an interim impairment analysis of goodwill. As a result of the analysis, the Company recorded an impairment charge of $22.6 million in the third quarter of 2020. See also Note 10 of the notes to consolidated financial statements.
Impairment of right-of-use asset
Year Ended December 31, Increase PercentChange
(in thousands, except percentages)
Impairment of right-of-use asset $ 1,919 $ — $ 1,919 — %
Percentage of revenues 1.6 % — %
During the third quarter of 2021, due to the continuing impacts of COVID-19 on the real estate markets and its impact on the future cash flows attributable to its ROU assets, the Company performed an impairment analysis of a sublease within its ROU assets. As a result, the Company recorded an impairment charge of $1.9 million during the third quarter of 2021.
Operating Income (Loss)
Year Ended December 31, Increase (Decrease) PercentChange
(in thousands, except percentages)
Percentage of revenues (1.5) % (29.1) %
Operating loss for the year ended December 31, 2021 was $1.8 million, a negative margin of 1.5%, compared to operating loss of $32.4 million, a negative margin of 29.1%, for the same period in 2020. The decrease in operating loss and improved percentage margin was primarily driven by non-cash impairments of goodwill and intangible assets of $37.8 million during the 2020 period, partially offset by increased investments in sales and marketing, higher depreciation, and the ROU asset impairment of $1.9 million in the third quarter of 2021.
Income from equity method investment
Year Ended December 31, Decrease PercentChange
(in thousands, except percentages)
Income from equity method investment $ 190 $ — $ 190 — %
Percentage of revenues 0.2 % — %
During the fourth quarter of 2021, the Company recorded $0.2 million of income related to its proportionate share of eFC's net income.
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Impairment of Investment
Year Ended December 31, Increase PercentChange
(in thousands, except percentages)
Percentage of revenues — % (1.8) %
During the first quarter of 2020, due to the impacts from the COVID-19 pandemic, the Company determined the value of its 7.6% interest in a leading tech skills assessment company to be zero. Accordingly, the Company recorded an impairment charge of $2.0 million during the first quarter of 2020.
Gain on investment
Year Ended December 31, Increase PercentChange
(in thousands, except percentages)
Gain on investment $ 1,198 $ — $ 1,198 — %
Percentage of revenues 1.0 % — %
The gain on investment of $1.2 million relates to a minority interest representing less than 1% of the common stock of a technology company that became publicly traded during the first quarter of 2021 after filing an initial public offering. The Company sold 100% of this investment during the third quarter of 2021. See also Note 7 of the notes to consolidated financial statements.
Interest Expense and Other
Year Ended December 31, Decrease PercentChange
(in thousands, except percentages)
Percentage of revenues 0.6 % 0.7 %
Interest expense and other decreased by $0.2 million, or 19.7%, from the same period in 2020. The decrease in interest expense was primarily due to lower weighted average debt outstanding during the year. The 2020 period included a $0.2 million gain recognized in the second quarter of 2020 on the sale of the Company's 20% interest in BioSpace.
Income Taxes
Year Ended December 31,
(in thousands, exceptpercentages)
Effective tax rate 61.0 % 8.0 %
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A reconciliation between tax benefit at the federal statutory rate and the reported income tax benefit is summarized as follows:
Year Ended December 31,
Federal statutory rate $ (216) $ (7,397)
Gain on sale of businesses or investments (251) (42)
Stock-based compensation (84) 432
Nondeductible impairment — 5,029
State tax expense (benefit), net of federal effect 110 (514)
Change in accrual for unrecognized tax benefits (155) (216)
Research and development tax credits (478) (530)
Income tax benefit $ (629) $ (2,826)
Our effective income tax rate was 61.0% and 8.0% for the years ended December 31, 2021 and 2020, respectively. The 2021 tax rate differed from the federal statutory rate primarily because of the utilization of a capital loss carryforward to offset a gain on an investment; deduction limitations on executive compensation; and tax credits for research and development. The 2020 tax rate differed from the federal statutory rate primarily because of tax deficiencies in stock-based compensation; nondeductible impairment charges; state tax benefits; and tax credits for research and development.
Income (loss) from discontinued operations, net of tax
Year Ended December 31, Decrease PercentChange
(in thousands, except percentages)
Percentage of revenues (24.5) % 2.1 %
During the second quarter of 2021, the Company transferred majority ownership of its eFC business to eFC management and has recorded it as a discontinued operation. As a result, the Company experienced a loss from discontinued operations, net of tax, of $29.3 million. The loss was comprised of $28.1 million related to the reclassification of currency translation adjustments and $5.2 million from the removal of eFC's net assets. The loss was partially offset by the recording of an equity method investment of $3.6 million and eFC's earnings during the period. Income from discontinued operations for the year ended December 31, 2020 represents eFC's earnings during the period.
Loss per share
Year Ended December 31,
(in thousands, exceptper share amounts)
Loss from continuing operations $ (402) $ (32,397)
Income (loss) from discontinued operations, net of tax (29,340) 2,382
Weighted-average shares outstanding-diluted 46,333 48,278
Diluted loss per share - continuing operations (0.01) (0.67)
Diluted earnings (loss) per share - discontinued operations (0.63) 0.05
Diluted loss per share (0.64) (0.62)
Diluted loss per share from continuing operations was $0.01 and $0.67 for the years ended December 31, 2021 and 2020, respectively. The decrease in diluted loss per share was primarily driven by the non-cash impairment charges during 2020 and
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the gain on investment in the 2021 period, partially offset by the ROU asset impairment and higher depreciation expense in the 2021 period. Diluted loss per share was $0.64 and $0.62 for the years ended December 31, 2021 and 2020, respectively. Current year to date loss per share is primarily driven by the loss on discontinued operations. The prior year loss per share is primarily driven by the impairment charges.
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, severance and retention costs related to dispositions and reorganizations of the Company, 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, 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 tool, 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
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•Other companies in our industry may calculate Adjusted EBITDA and Adjusted EBITDA Margin differently than we do, limiting their usefulness as a comparative measure.
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, 2022, 2021 and 2020 follows (in thousands):
Year Ended December 31,
Reconciliation of Net Income (loss) to Adjusted EBITDA:
Income from equity method investment (1,597) (190) —
Impairment of intangible assets — — 15,200
Impairment of goodwill — — 22,607
Impairment of right-of-use asset — 1,919 —
Proceeds from settlement (2,061) — —
Loss (income) on discontinued operations, net of tax — 29,340 (2,382)
Other — (80) —
Reconciliation of Operating Cash Flows to Adjusted EBITDA:
Amortization of deferred financing costs (146) (147) (147)
Change in accrual for unrecognized tax benefits 16 156 446
Discontinued operations results — (3,593) (7,290)
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A reconciliation of Adjusted EBITDA Margin for the years ended December 31, 2022, 2021 and 2020 follows (in thousands, except percentages):
Year Ended December 31,
Net income (loss) margin(1) 3 % (25) % (27) %
Adjusted EBITDA Margin(1) 21 % 22 % 20 %
Liquidity and Capital Resources
Cash Flows
We have summarized our cash flows for the years ended December 31, 2022, 2021 and 2020 as follows (in thousands):
Year Ended December 31,
We have financed our operations primarily through cash provided by operating activities and borrowings under our revolving credit facility. At December 31, 2022, we had cash and borrowings of $3.0 million and $30.0 million, respectively, compared to $1.5 million and $23.0 million, respectively, at December 31, 2021.
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 $70.0 million in borrowing capacity under our $100.0 million Credit Agreement at December 31, 2022, 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, 2022 and 2021
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 $36.0 million and $28.6 million for the years ended December 31, 2022 and 2021, respectively, an increase of $7.4 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
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from our customers. Cash provided by operating activities during the year ended December 31, 2022 increased primarily due to strong billings to and collections from customers and the timing of certain vendor and tax payments.
Investing Activities
During the year ended December 31, 2022, cash used in investing activities was $17.7 million compared to $19.3 million of cash used in investing activities during the year ended December 31, 2021. 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. Cash used in investing activities during the year ended December 31, 2021 is comprised of $3.2 million of cash transferred to eFC related to the transfer of ownership in the prior year period, $3.0 million of cash paid for an investment as described in Note 7 of the notes to consolidated financial statements, and $14.3 million of fixed assets purchases, which is primarily comprised of capitalized development costs, partially offset by cash proceeds of $1.2 million from the sale of an investment.
Financing Activities
Cash used in financing activities 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. Cash used during the year ended December 31, 2021 was $15.4 million and was driven by $18.4 million of share repurchases, partially offset by $3.0 million of net borrowings on long-term debt.
Comparison of Years Ended December 31, 2021 and 2020
Operating Activities
Net cash flows from operating activities primarily consist 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 $28.6 million and $18.7 million for the years ended December 31, 2021 and 2020, respectively, an increase of $9.9 million. Cash inflow from operations is driven by earnings and is dependent on the amount and timing of billings and cash collection from our customers. Cash provided by operating activities during the year ended December 31, 2021 increased primarily due to strong billings to and collections from customers.
Investing Activities
During the year ended December 31, 2021, cash used in investing activities was $19.3 million compared to $15.9 million of cash used in investing activities during the year ended December 31, 2020. Cash used by investing activities during the year ended December 31, 2021 increased from the comparable 2020 period due to cash transferred to the eFC business and cash paid for investment, partially offset by lower internal development costs, primarily driven by lower headcount and development activities dedicated to the transfer of the eFC business, partially offset by higher proceeds from sale of investments.
Financing Activities
Cash used in financing activities during the year ended December 31, 2021 was $15.4 million primarily due to $3.0 million of net borrowings on long-term debt and $18.4 million of repurchases of common stock. Cash used during the year ended December 31, 2020 was $0.5 million primarily due to $10.5 million of repurchases of common stock, partially offset by $10.0 million of net borrowings on long-term debt.
Financings and Capital Requirements
Credit Agreement
We have a $100 million revolving credit facility, which matures June 2027, with $30.0 million of outstanding borrowings on the facility at December 31, 2022, leaving $70.0 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
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Company’s most recent consolidated leverage ratio. Assuming an interest rate of 6.67% (the rate in effect on December 31, 2022) on our current borrowings, interest payments are expected to be $2.0 million per year in years 2023 through 2026 and $1.0 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, 2022, 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 eight 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, 2022 the value of our lease right-of-use asset was $6.6 million and the value of our lease liability was $8.5 million. Our recorded lease right-of-use asset and lease liability were each reduced $2.1 million as of December 31, 2022, which represents a tenant improvement allowance that is expected to be consumed in 2023. 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