GEE Group Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2022. Financial statements are unaudited; amounts below are in millions of dollars unless stated otherwise.
Business context
GEE Group provides temporary contract staffing and permanent placement services through Professional Staffing Services and Industrial Staffing Services, operating across multiple U.S. markets. The company reported results for the quarter ended June 30, 2022, within its fiscal year ending September 30.
Financial performance
| Metric | Three months ended June 30, 2022 | Prior-year quarter | Nine months ended June 30, 2022 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $41.1 | $38.1 | $123.6 | $107.4 |
| Gross profit | $16.5 | $13.8 | $46.6 | $37.3 |
| Operating income | $2.8 | $1.6 | $4.0 | $4.2 |
| Net income (loss) | $2.6 | $(0.9) | $20.4 | $(3.0) |
| Diluted EPS | $0.02 | $(0.01) | $0.18 | $(0.07) |
| Operating cash flow | Not separately presented | Not separately presented | $7.8 | $(2.3) |
Quarterly revenue increased 8%; direct-hire placement revenue rose 45% to $8.0 million, while contract staffing revenue grew 2% to $33.1 million. For the nine-month period, revenue rose 15%: professional contract services increased 12% and direct hire increased 60%, while industrial contract revenue declined 8%.
Consolidated gross margin was 40.1% for the quarter versus 36.3% in the prior-year quarter, and 37.7% for the nine months versus 34.7%. The higher direct-hire revenue mix, which carries a reported 100% gross margin, contributed to the increase. Nine-month industrial contract margin was 15.5% versus 25.2%; excluding workers’ compensation premium refunds, the comparable margins were approximately 14.8% and 14.9%.
Quarterly SG&A increased to $12.9 million from $11.1 million. Nine-month SG&A rose to $37.4 million from $29.8 million. The company cited business growth and related compensation, a $0.4 million increase in bad-debt expense, a $0.975 million legal settlement, and $0.838 million of severance charges. Nine-month operating income declined despite revenue and gross-profit growth, partly reflecting these costs and a $2.15 million non-cash goodwill impairment.
Liquidity, debt and balance sheet
- Cash was $17.5 million at June 30, 2022, up from $9.9 million at September 30, 2021. Working capital was $26.5 million, compared with $2.5 million.
- Operating cash flow for the nine months was $7.8 million; investing cash outflow was $0.2 million, primarily capital expenditures. There were no financing cash flows in the period.
- No borrowings were outstanding on the $20 million CIT asset-based revolver; reported availability was $14.3 million. The facility matures in May 2026 and is secured by company assets.
- Total liabilities were $16.2 million and shareholders’ equity was $101.6 million at June 30. Operating lease liabilities totaled $3.7 million.
Material changes, outlook and risks
- Nine-month net income includes a $16.8 million non-taxable gain from forgiveness of the remaining PPP loans in December 2021. Accordingly, reported net income substantially reflects a nonrecurring item.
- The SBA may audit the forgiven PPP loans. The company warns that loans could be reinstated in whole or in part, requiring repayment and potentially additional financing.
- Management said it does not provide forecasts. It described a strategy focused on organic and acquisition growth, particularly in higher-margin professional staffing and direct hire, alongside cost management. Management believes cash and working capital are adequate to meet obligations for at least one year after filing.
- COVID-19 effects had eased overall, but management continued to identify industrial staffing and certain professional end markets as exposed to renewed disruption. Industrial revenue fell year over year for the nine-month period.
- A February 2022 cyber incident involved system encryption and access to a relatively small amount of data, including some personal information. The company reported minimal operational impact and immaterial response costs, but affected individuals were being notified; future effects cannot be assured.
- A long-running lawsuit was settled in March 2022 for approximately $1.175 million, with $0.975 million paid by the company and the balance covered by insurance. The settlement was paid and expensed during the nine-month period, without admission of wrongdoing.
- The company recorded a $2.15 million goodwill impairment after an interim assessment; no additional impairment was recorded at June 30. Management reported effective disclosure controls and no material changes to internal control over financial reporting.
Most important facts for investors to verify
- How much of nine-month earnings and working-capital improvement is attributable to PPP forgiveness rather than recurring operations.
- Whether SBA audits could result in any PPP loan reinstatement, repayment obligation, or need for new financing.
- Trends in industrial staffing demand and margins, and whether direct-hire growth and improved professional staffing margins persist.
- Further developments, costs, or liabilities arising from the cyber incident, including completion of required individual notifications.
- Customer credit quality and bad-debt exposure, including the disclosed increase associated with a light industrial customer.