GEE Group Inc. — Form 10-Q Summary
Reporting period: Three months ended December 31, 2020 (fiscal 2021 Q1). Unaudited results; amounts below are in millions unless otherwise stated. GEE Group provides professional and light-industrial staffing, including contract staffing and direct-hire placement.
Key financial results
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Revenue | $34.643 | $37.557 | Down 8% |
| Gross profit | $12.580 | $12.595 | Approximately flat |
| Gross margin | 36.3% | 33.5% | Up 2.8 percentage points |
| Operating income (loss) | $1.976 | $(0.173) | Improved $2.149 |
| Interest expense | $2.686 | $3.219 | Down $0.533 |
| Net loss | $(0.315) | $(3.563) | Loss narrowed |
| Basic and diluted loss per share | $(0.02) | $(0.27) | Improved |
| Cash from operating activities | $0.047 | $(1.450) | Improved |
Contract staffing generated $31.248 million, down 6%; direct-hire revenue was $3.395 million, down 24%. Professional contract revenue declined 5%, industrial contract revenue declined 10%, and direct-hire revenue declined 24% year over year. Gross profit was nearly unchanged despite lower revenue.
Balance sheet, debt and liquidity
- At December 31, 2020, cash was $14.119 million, total assets $120.471 million, and working capital $11.485 million, versus $13.351 million of working capital at September 30, 2020.
- Debt-related balance-sheet amounts included $11.828 million outstanding on the revolving facility, a term loan of $43.193 million before discount ($38.744 million net carrying value), and PPP loans and accrued interest of $20.068 million. The revolver carried approximately 11% interest; the term loan carried approximately 11% cash interest plus 5% paid-in-kind interest.
- The company reported $2.412 million currently available under the revolving facility. Its senior credit facilities mature June 30, 2023; quarterly term-loan principal payments were scheduled to resume in June 2021. Management cited approximately $6.942 million of minimum debt-service principal payments and $1.812 million of lease payments over the next 12 months.
- Operating cash flow was slightly positive; investing activities used $0.002 million and financing activities were flat. Cash increased $0.045 million during the quarter.
Changes, unusual items and management commentary
- Revenue has recovered sequentially from the pandemic-era low of $26.594 million in the quarter ended June 30, 2020, reaching $34.643 million in the current quarter. It remained below the year-earlier quarter. Management said monthly revenue generally rose from May through October, dipped in November partly because of fewer billing days, and increased in December.
- The 36.3% consolidated gross margin benefited materially from $1.537 million of Ohio Bureau of Workers’ Compensation premium refunds. Industrial staffing margin was 45.5% as reported, but approximately 15.4% excluding those refunds, compared with 15.6% a year earlier. Professional contract margin was 26.2%, versus 26.4%.
- SG&A declined $1.804 million to $9.487 million, reflecting lower employee-related and stock-compensation costs and cost-control actions. Operating income also benefited from lower amortization. Management attributed the year-over-year improvement in operating income partly to the unusual workers’ compensation refunds; excluding them, operating income improved by $0.612 million.
- The $0.395 million income-tax benefit included a $0.352 million one-time benefit related to changes in PPP-loan expense deductibility. Net loss also reflected $2.686 million of interest expense, including $0.547 million of noncash PIK interest.
- Management does not provide financial forecasts. It said it remained optimistic about recovery toward pre-COVID-19 performance, but the pace was uncertain. Its liquidity outlook for at least 12 months assumes COVID-19 impacts do not worsen and economic recovery occurs.
Risks, contingencies and other disclosures
- COVID-19 continued to pressure staffing demand, especially in light industrial and finance, accounting and office markets. Risks include renewed disruption, reduced client hiring, project cancellations, delayed customer payments, and the possibility that cost savings will not offset revenue declines.
- The company had $19.927 million of PPP loans and intended to seek forgiveness. Management believed it qualified but warned that forgiveness was uncertain; the loans therefore remained recorded as debt. PPP repayment timing and amounts may change depending on forgiveness outcomes.
- The company also had $3.770 million of deferred employer payroll taxes, payable in installments by December 31, 2021 and December 31, 2022. The senior credit agreement includes restrictive financial covenants; the company reported that it met them for the trailing four quarters ended December 31, 2020.
- Management reported no pending significant legal proceedings expected to have a material adverse effect. No goodwill impairment was recorded. Disclosure controls were assessed as effective, with no material change in internal control reported.
Important facts for investors to verify
- Whether staffing demand and revenue recovery continued, and whether performance returned toward pre-pandemic levels.
- How much of reported margin and operating-income improvement came from the $1.537 million workers’ compensation refund, and what underlying margins were thereafter.
- The status and ultimate forgiveness of the $19.927 million PPP loans, including repayment obligations if forgiveness is denied or partial.
- Available revolver capacity, compliance with senior-debt covenants, upcoming principal payments, and ability to meet debt and lease obligations from operating cash flow.
- Whether recurring profitability and cash generation can be sustained without one-time tax benefits, premium refunds, or further cost reductions.