GEE Group, Inc. (AMEX:JOB) Q4 2023 Earnings Call Transcript

GEE Group, Inc. (AMEX:JOB) Q4 2023 Earnings Call Transcript December 19, 2023

JOB 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 Fourth Quarter and Year End September 30, 2023 Earnings and our update for 2024 Webcast Conference Call. I’m Derek Dewan, the Chairman and Chief Executive Officer of GEE Group, and 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 year and the fourth quarter ended September 30, 2023, and provide you with our outlook for the fiscal year 2024 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 Monday’s earnings press release and our most recent Form 10-Q, Form 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 will also talk about some non-GAAP financial measures. Reconciliations and explanations of the non-GAAP financial measures that we address today are included in our earnings press release.

Our presentation of financial amounts and related items, including growth rates, margins and trend metrics are rounded are 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. Having turned in the record performance and results for the fiscal 2022 year, we encountered significant macroeconomic and staffing industry particular headwinds in fiscal 2023, which negatively impacted our full fiscal year and fourth quarter ended September 30, 2023. Consolidated revenues were $152.4 million for the fiscal year and revenues for our fiscal fourth quarter were $34.3 million.

Gross profit and gross margins were $52.9 million and $11.6 million and 34.7% and 34% for the fiscal year and fourth quarter ended September 30, 2023, respectively. Our consolidated non-GAAP adjusted EBITDA for fiscal 2023 was $7 million, down $5.5 million or 44% compared to fiscal 2022. Non-GAAP adjusted EBITDA for the fiscal 2023 fourth quarter was $1.2 million, up $0.2 million or 23% compared to the fiscal 2022 fourth quarter. We were able to achieve consolidated net income of $9.4 million or $0.08 per diluted share for the 2023 fiscal year. Consolidated net income for the fiscal 2023 fourth quarter was $0.2 million and slightly above breakeven per diluted share. As Kim will explain further, the prior fiscal year’s results were well above normal led by record high demand for direct hire placement services fueled by a post COVID-19 bounce upward in hiring.

The pull back in demand for direct hire placement services and in certain administrative, clerical and light industrial contract services in 2023 contributed to the shortfall in 2023 results compared with last year’s numbers. Fiscal 2023’s performance still compares favorably with our industry peers taking into account the operating environment and particularly, in terms of the growth we achieved in our combined professional IT contract services businesses and brands. Before I turn it over to Kim, I would like to share some important achievements and milestones during the quarter. First, the September 2023 quarter was our ninth consecutive quarter of profitability and free cash flow generation since we completed our deleveraging initiatives in June of 2021.

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Q&A Session

Despite fiscal 2023’s lower results compared to fiscal 2022, our operating performance and financial results have been on par with and better in certain respects than our larger industry peers. We believe our IT contract services brands demonstrated the ability to grow under difficult conditions, and in particular, positions us well for future growth and further increasing shareholder value. We implemented our $20 million share repurchase program in late April 2023, which has served as a key component of our capital allocation plans in fiscal 2023. As of September 30, 2023, we had repurchased 3.4 million shares of our common shares and as of December 15, 2023, we have repurchased 5.8 million JOB shares or 5% of our outstanding shares at the beginning of the program.

I want to assure everyone that we believe that our stock is undervalued and has substantial room to grow. As a matter of fact, many, if not most publicly traded staffing firms, are trading below market indices and their 52 week highs due to economic concerns. Measuring forward from the time we announced the funding of our follow-on offering on April 19, 2021. GEE Group stock has outperformed most of its public staffing industry peers, including several of the largest players. Despite the macroeconomic and staffing industry specific headwinds facing us, we are continuing to focus on the growth of our businesses and taking other definitive actions to help grow shareholder value. In addition to repurchasing 5% of our outstanding shares in 2023, we added three new independent directors to our board in the fall, including the managing director of our largest shareholder appointed a lead independent director and committed to undertake a review of strategic alternatives available to us with a view towards unlocking shareholder value.

Most recently, we have engaged the investment baking firm of DC Advisory to assist us with the review of strategic alternatives, which includes capital allocation strategies, mergers, acquisitions, et cetera. 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 2023 annual and fourth quarter results. Kim?

Kim Thorpe: Thank you, Derek, and good morning. As Derek mentioned, revenues for fiscal 2023 were $152.4 million, down 8% as compared with fiscal 2022 revenues of $165.1 million. Revenues for the fourth quarter of the fiscal year were $34.3 million, down approximately 18% as compared with the fourth quarter of fiscal 2022. The lower revenues in fiscal 2023 were primarily the result of the macroeconomic forces, including inflation, rising interest rates and the resulting negative impacts on the labor market and hiring environment, which impacted the entire staffing industry. Fiscal 2023 followed a period of recovery experienced in 2022, which was primarily due to a post COVID-19 bounce upward in employment. As Derek mentioned, the pull back in demand for direct hire placement services and in certain administrative, clerical and light industrial contract services in 2023 that contributed to the shortfall in 2023 results were primarily the result of these headwinds.

While fiscal 2023 results were lower overall, the company once again was profitable and generated good positive cash flow from operations, as it has consistently done since completion of the significant deleveraging initiatives and a follow-on offering during the quarter ended June 30, 2021. We also believe our top line performance has been in line with our industry peers and above average in certain respects, including the performance our IT brands. Our lowest performing businesses continued to be those serving light industrial and administrative and office clerical markets. At this stage, we remain cautiously optimistic about our ability and timing to return to overall growth once again, which we expect to be led by our IT brands and our other professional services businesses, and with the anticipation that the uncertainties and unknowns about the economy and labor environments weighing on the businesses today begin to lessen during fiscal 2024.

Professional and industrial contract staffing services contributed $133 million and $30.7 million or 87% and 90% of revenues for the fiscal 2023 year and fourth quarter, respectively. Professional contract services revenues, our largest contract services segment, represents 86% of all contract services revenue and 79% of consolidated revenue, and decreased $2.5 million or 2% compared to fiscal 2022. The bright spots in this comparison were the professional IT brands’ contract services revenues, which grew 3% year-over-year. IT contract services revenues were 59% of all professional services contract revenue and IT direct hire and contract services revenue combined represent 49% nearly half of the consolidated revenues for fiscal 2023. Direct hire revenues for fiscal 2023 were [$19.4] million, down $7.2 million or 27% compared with fiscal 2022.

Direct hire placement revenues for fiscal 2023 fourth quarter were $3.6 million, down $2.9 million or 45% as compared to the fiscal 2022 fourth quarter. As Derek and I have mentioned earlier, fiscal 2022 was a record high year for direct hire placement services. Industrial staffing services revenues were $13 million and $3 million and represented 9% of total revenue for both fiscal year and fourth quarter ended September 30, 2023, respectively. We continue to experience growth challenges in our light industrial markets, which we attribute to increased competition for business and temporary labor, which again has occurred since the COVID-19 pandemic. Among the newer post-COVID-19 competitors for labor are emerging B2C firms, such as UBER, Lyft and Door Dash.