GEE Group, Inc. (AMEX:JOB) Q1 2024 Earnings Call Transcript

GEE Group, Inc. (AMEX:JOB) Q1 2024 Earnings Call Transcript February 14, 2024

GEE Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Derek Dewan: Hello, and welcome to the GEE Group fiscal 2024 First Quarter Ended December 31, 2023 Earnings and Update Webcast Conference Call. I’m Derek Dewan, Chairman and Chief Executive Officer of GEE Group. I will be hosting today’s call. Joining me as a co-presenter is Kim Thorpe, our Senior Vice President and Chief Financial Officer. Thank you for joining us today. It is our pleasure to share with you GEE Group’s results for the fiscal 2024 first quarter ended December 31, 2023, and provide you with our outlook for the remainder of the 2024 fiscal year and the foreseeable future. Some comments Kim and I will make may be considered forward looking, including predictions, estimates, expectations and other statements about our future performance.

These represent our current judgments of what the future holds and are subject to risks and uncertainties that actual results may differ materially from our forward-looking statements. These risks and uncertainties are described below under the caption, “Forward- Looking Statements Safe Harbor” and in Tuesday’s earnings press and our most recent Form 10-Q, 10-K and other SEC filings under the captions, “Cautionary Statement Regarding Forward Looking Statements” and, “Forward-Looking Statements” Safe Harbor. We assume no obligation to update statements made on today’s call. During this presentation, we also will talk about some non-GAAP financial measures. Reconciliations and explanations of the non-GAAP measures we will address today are included in the earnings press release.

Our presentation of financial amounts, and related items including growth rates, margins and trend metrics, are rounded, or based upon rounded amounts, for purposes of this call and all amounts, percentages and related items presented are approximations, accordingly. For your convenience, our prepared remarks for today’s call are available in the Investor Center of our website, www.geegroup.com. We faced significant difficulties in the fiscal 2024 first quarter ended December 31, 2023 mainly stemming from economic and labor market instability and uncertainty. Economic and market conditions for us and our industry began to worsen earlier in calendar 2023 following a COVID-19 bounce in 2022, and it worsened even more in the second half of calendar 2023, leading to the significant decline in results from the comparable fiscal 2023 first quarter ended December 31, 2022.

Consolidated revenues were $30.6 million for the fiscal 2024 first quarter. Gross profit and gross margin were $9.7 million and 31.8%, respectively, for the fiscal 2024 first quarter. Consolidated non-GAAP adjusted EBITDA was minus $200,000 and we reported a net loss of $1.6 million, or $0.01 per diluted share, for the fiscal 2024 first quarter. The prior fiscal 2023 first quarter results were above normal led by record high demand for direct hire placement services in 2022, driven by the post-COVID recovery bounce at that time. The pullback in demand for direct hire placement services, in particular, contributed to the significant shortfall in fiscal 2024 first quarter results relative to those of the first quarter of fiscal 2023. Our performance still compares and tracks consistently with our industry peers as we all are facing similar challenges.

The challenges being faced by the US Staffing Industry, as a whole, including us, are expected to continue through at least the first half of calendar 2024. Before I turn it over to Kim, I would like to touch on some recent achievements. We concluded our share repurchase program on December 31, 2023 under which we purchased 6.1 million shares of JOB common stock, or just over 5% of our outstanding shares at the beginning of the program. In December 2023, our M&A Committee of the Board of Directors engaged the investment banking firm, DC Advisory, to assist the Company with the review of strategic alternatives, which includes capital allocation strategies, mergers, acquisitions, and others, including future share repurchases. We expect to receive DC Advisory’s initial findings to be presented to the M&A Committee as soon as this week or next.

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Q&A Session

I want to assure everyone that our sole focus now and into the immediate future is to manage though this downturn with the objective of minimizing its negative impacts on our businesses and preparing for an eventual recovery. We have hardened our balance sheet with substantial liquidity in the form of cash and borrowing capacity and are very well prepared to successfully navigate our present poor economic conditions. We also continue to believe that our stock is undervalued and has substantial room to grow. And finally, before I turn it over to Kim, I want to once again thank our wonderful, dedicated employees and associates. They work extremely hard every day to ensure that our clients get the very best service. They are a key factor in our achievements and the most important driver of our Company’s future success.

At this time, I’ll turn the call over to our Senior Vice President and Chief Financial Officer, Kim Thorpe, who will further elaborate on our fiscal 2024 first quarter results. Kim?

Kim Thorpe: Thank you, Derek, and good morning. As Derek mentioned, revenues for the fiscal 2024 first quarter were $30.6 million, down 26% as compared to the fiscal 2023 first quarter revenue of $41.1 million. Results for the fiscal 2024 first quarter declined in comparison to those of fiscal 2023’s first quarter, due mainly to the significant worsening of economic conditions. We also achieved record performance in the 2022 calendar year, including the fiscal 2023 first quarter ended December 31, 2022, driven by what some in our industry refer to as Derek mentioned a minute ago is was a post-COVID-19 bounce in employment recovery trends. This gave way to returning concerns about uncertainties surrounding the economy that have negatively impacted labor markets throughout 2023, and worsened in the later portion of calendar 2023, leading to further decreases in orders and placements for our businesses through the first fiscal quarter of 2024.

Professional and industrial contract staffing services revenues for the fiscal 2024 first quarter were $27.6 million, down 22% as compared to the fiscal 2023 first quarter. Professional contract services revenue, which represents 91% of all contract services revenue and 82% of total revenue, decreased $6.7 million, or 21%, quarter over quarter. Industrial contract services revenue, which represents 9% of all contract services revenue and 8% of all revenue, decreased $1.1 million, or 31%, quarter over quarter. Again, the economic and labor market factors previously discussed contributed to a decline in orders from clients, as well as temporary labor to fill those orders, leading to the decrease in contract revenues. Direct hire revenues for the fiscal 2024 first quarter were $3.1 million, down 47% as compared with fiscal 2023 first quarter direct hire revenues.

As Derek and I mentioned earlier, the fiscal 2023 first quarter ended December 31, 2022, was part of and at the end of a record high calendar year for direct hire placements. Furthermore, direct hire placements versus temporary placements are usually the first to be negatively impacted in an economic downturn, such as that experience since 2022’s post-COVID-19 bounce, to the resurgence of economic and labor uncertainties in 2023. Gross profit for the fiscal 2024 first quarter was $9.7 million, down 32% as compared to the fiscal 2023 first quarter gross profit of $14.4 million. Our overall gross margins were 31.8% and 35% for the fiscal 2024 and 2023 first quarters, respectively. These decreases in gross profit and gross margin are mainly attributable to the decline in direct hire business for the fiscal 2024 first quarter — I’m sorry, mainly attributable to the decline in direct hire business which has 100% gross margin.

Our Professional Contract Services gross margin was 25% for the fiscal 2024 first quarter compared with 25.4% for the fiscal 2023 first quarter, a decline of only 40 basis points. Our Light Industrial Services gross margin was 16% for the fiscal 2024 first quarter, compared with 15.5% for the fiscal 2023 first quarter, which was an increase of 50 basis points. Despite lower quarter-over-quarter overall gross profit and gross margins, our current margins remain relatively high as compared with those of our competitors. Selling, general and administrative expenses, SG&A for the fiscal 2024 first quarter were $10.6 million, down 17% as compared with the fiscal 2023 first quarter. SG&A expenses were 34.6% of revenues for this fiscal 2024 first quarter, compared with 31.1% of the fiscal 2023 first quarter.

The increase in SG&A relative to revenue is primarily attributable to fixed costs, including personnel-related expenses, occupancy costs, software subscriptions for applicant sourcing and tracking, and others, which increased proportionally relative to lower revenues, and to a lesser extent, certain other non-recurring expenses associated with core business operations. We reported a net loss for the fiscal 2024 first quarter of $1.6 million, or negative $0.01 per diluted share, down $2.3 million as compared with net income of $700,000, or $0.01 per diluted share for the fiscal 2023 first quarter. Adjusted net loss, which is a non-GAAP financial measure for the fiscal 2024 first quarter was a negative $900,000, or a negative $0.01 per diluted share, down $2 million as compared with $1.1 million, or $0.01 per diluted share for the fiscal 2023 first quarter.

Our reported net losses for the fiscal 2024 first quarter again are mainly the result of the decreases in revenues and gross profit, and gross margin on lower direct hire placement business previously discussed. Adjusted EBITDA, which is a non-GAAP financial measure for the fiscal 2024 first quarter was a negative $200,000, down $2.2 million as compared with $2 million for the fiscal 2023 first quarter. Our current or working capital ratio as of December 31, 2023, was 4.2-to-1, up 60 basis points from 3.6-to-1, as of September 30, 2023. We reported negative cash flow from operating activities of $900,000 for the fiscal 2024 first quarter ended December 31, 2023. Our liquidity position remains very strong and we have no outstanding debt. Our net book value per share and net tangible book value per share were $0.93 and $0.33, respectively, as of December 31, 2023.

To conclude, we’re disappointed with our fiscal 2024 first quarter results, and we remain cautious in our outlook for the remainder of fiscal 2024, considering current economic and labor market uncertainties. Importantly, however, we do remain optimistic for the long-term and have demonstrated we can produce earnings consistently under better economic conditions. Before I turn it back over to Derek, please note that reconciliations of GEE Group’s non-GAAP financial measures discussed today, with their GAAP counterparts can be found in supplemental schedules included in our earnings press release. Now, I’ll turn the call back over to Derek.

Derek Dewan : Thank you, Kim. At December 31, 2023, the company had $19.9 million in cash and another $9.3 million in availability under its bank ABL facility. Despite economic headwinds and staffing industry-specific challenges impacting demand for our services, we are aggressively managing and preparing our businesses for an inevitable recovery. We will continue to work hard for the benefit of our shareholders including consistently evaluating strategic uses of GEE group’s capital to maximize shareholder returns. Before we pause to take your questions, I want to again say a special thank you to all of our wonderful employees for their professionalism, hard work and dedication without them we could not have accomplished all the good things we have shared with you today.

Now Kim and I will be happy to answer your questions. Please just ask one question and rejoin the queue with a follow-up as needed. If there is time, we will come back to you for additional questions. Thank you.

A – Derek Dewan: So the first question is regarding the stock buyback and that expired by December 31, 2023 would we consider reinstating a buyback plan and the thought process? We are waiting for the findings from our investment bank DC advisory which is which we’ll set forth strategic alternatives including maximum use of our capital which they will evaluate all the options we have with respect to utilization of our capital and we expect that settlement either the latter part of this or next week. We will communicate back also with you regarding the findings there. So we are well-positioned cash-wise and credit-wise. We have no debt. So we’re very, very in good shape. And by that I mean long-term debt. Kim, would you like to add anything to that?

Kim Thorpe: No. I mean I think we’re you know I would like to point out. I know the quarter is disappointing, but we you know we’re very well prepared for this. We’ve been we’ve done it before. We came out stronger after the pandemic than before the pandemic actually. So I wouldn’t — I don’t have anything add.

Derek Dewan: Thank you. One of the questions — the next question has to do with the strategic alternatives again. We are going to wait for our report to discuss those in further. How much did the company spend on DC advisory strategic review? I believe that that is on held confidential based on DC advisory agreement with us. So I really can’t discuss that. I would say though we are very, very cost-conscious there and they were very, very – very, very good about working with us at a low rate and I felt very good about the process and we forward to their findings. So one question is what things with the strategic review produce? And as I mentioned the best use of our capital. We’ll talk about M&A strategy and so forth. And when we get support we’ll talk more about what we’re doing there.

On a long-term basis if you like your stock buyback, would you like to buy it at $0.37? I’d like to buy it at $1 quite frankly, but the stock buyback program was successful thus far. And I want to also comment on recessionary trends. The trend line for our business, you’ll see a dip in 2000-2001, you’ll see it in 2008 to 2009. And again that same dip is what we’re facing now. The good thing is the recovery doesn’t shows have a rapid rise in business volume. We are preparing for the rapid rise and the way we’re preparing is hiring sales and recruiting personnel to meet the demand. Also we keep SG&A in check. SG&A dropped significantly almost $2 million for this quarter. It’s up as a percentage of revenue because of the revenue drop but we have a few arrows in the quiver to work on SG&A bit.

But you don’t want to cut SG&A to the bone if your expectation is there will be a demand recovery at some point in the near future. In the near future can mean six months, it can be nine months, but we can see it in our back order log for job orders. So, we will keep you posted on that, but I can tell you I’ve been through it before I really enjoy the recovery period.

Kim Thorpe: Hello. Derek, are you there? I think Derek has had some difficulty with his mic. So, I’ll have to step in and take over a couple of these questions. The repurchase program expires December 23 with the new plant at these levels does it make sense to buy more stock. The DC advisory is definitely looking at that along with the other portions of the review. As Derek said the — they intend to complete the review and have a report to us either this week or next week to our M&A committee. Our M&A committee is leading that project. It’s comprised entirely of independent Directors. And so it’s something that we take very seriously in the realm of governance. Does the strategic alternatives review include a serious look at selling the company?

All pathways will be reviewed in the strategic alternatives review. Although there’s another question here, would you consider selling the company under these conditions? My own personal opinion, I think I speak for Derek as well, I prefer to sell — buy low and sell high rather than the opposite.

Derek Dewan: Well, Ken I can also add.

Kim Thorpe: [indiscernible]. Sorry.