GEE Group Inc. — Form 10-Q Summary
Reporting period: Fiscal quarter and six months ended March 31, 2021. Financial statement amounts are in thousands of dollars, except per-share data, unless stated otherwise. GEE Group provides professional and industrial contract staffing and direct-hire placement services.
Financial results and position
| Metric | Three months ended Mar. 31, 2021 | Prior-year quarter | Six months ended Mar. 31, 2021 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $34.718 million | $34.681 million | $69.361 million | $72.237 million |
| Gross profit | $10.908 million | $11.914 million | $23.488 million | $24.508 million |
| Gross margin | 31.4% | 34.4% | 33.9% | 33.9% |
| Operating income (loss) | $0.637 million | ($2.353 million) | $2.614 million | ($2.527 million) |
| Net loss | ($1.735 million) | ($5.428 million) | ($2.050 million) | ($8.992 million) |
| Loss per share | ($0.10) | ($0.38) | ($0.12) | ($0.66) |
- Quarterly revenue mix: Contract staffing revenue was $31.063 million, up 3%; direct-hire revenue was $3.655 million, down 17%. Professional contract revenue rose 5%, while industrial contract revenue declined 10%.
- Six-month revenue mix: Contract staffing revenue declined 2% to $62.311 million; direct-hire revenue fell 21% to $7.050 million. Professional contract revenue was nearly unchanged year over year, while industrial contract revenue declined 10%.
- Margins and expenses: Quarterly gross margin fell to 31.4% from 34.4%, reflecting lower contract-services margins and revenue mix. SG&A declined to $9.179 million from $12.800 million; management attributed the reduction to cost controls and noted a prior-year $1.7 million bad-debt charge related to a customer bankruptcy. Six-month SG&A fell to $18.665 million from $24.091 million.
- Cash flow and liquidity: Operating cash flow was positive $0.196 million for the six months, compared with negative $2.067 million a year earlier. Cash was $14.258 million at March 31, up $0.184 million from September 30, 2020. Working capital was $8.685 million, down from $13.351 million.
- Debt and obligations at March 31: The balance sheet included $11.828 million under the revolving facility, $39.731 million net of discount on the term loan, and approximately $19.831 million of PPP loans. The MGG term loan carried about 11% cash interest plus 5% payment-in-kind interest; the revolver carried about 11%. Operating lease liabilities totaled $4.846 million.
Material changes, outlook and risks
- Management reported recovery in professional contract staffing since May 2020, but said industrial and direct-hire demand remained affected by COVID-19. The company cited labor shortages and ongoing uncertainty in the recovery. Direct-hire services may recover more slowly than contract staffing.
- Industrial gross margin for the six-month period was 29.3%, versus 15.0% a year earlier, but included $1.318 million of Ohio workers’ compensation premium refunds. Excluding those refunds, management reported margins of approximately 14.9% and 14.5%, respectively. The March quarter included a negative $0.219 million adjustment; normalized industrial margin was approximately 14.2% versus 14.1%.
- After quarter-end, the company raised approximately $52.567 million in net proceeds from a public offering and full exercise of the over-allotment option, issuing approximately 95.8 million shares at $0.60 per share. It used offering proceeds and cash to repay approximately $56.022 million of MGG debt on April 20, 2021. The share issuance materially increased the share count; 113,500,455 common shares were outstanding May 14, compared with 17.667 million reported at March 31.
- On May 14, 2021, GEE Group entered a $20 million, asset-based revolving credit facility with CIT Bank, maturing in 2026 and secured by company and subsidiary assets. The borrowing base is generally tied to 85% of eligible accounts receivable, subject to conditions and reserves. The company borrowed $5.326 million at closing, including funds used to pay $4.978 million of former-lender exit and restructuring fees. It expects a one-time $4.004 million charge to write off unamortized former debt costs.
- PPP loans remained recorded as debt pending forgiveness decisions. One subsidiary received forgiveness of $0.279 million; management said forgiveness of remaining balances was uncertain. The company also deferred $3.692 million of employer payroll taxes, with payments due by December 2021 and December 2022.
- Management does not provide forecasts. It said liquidity should be adequate for at least twelve months if COVID-19 impacts do not worsen and economic recovery continues. Risks include pandemic-related demand and collection disruptions, competition, recruiting and retaining qualified staff, and potential liability arising from contract workers. Management reported disclosure controls were effective and no pending significant litigation expected to materially affect financial position.
Investor verification points
- Track whether professional staffing recovery continues and whether industrial and direct-hire demand improve, particularly given labor shortages and COVID-19 uncertainty.
- Assess recurring industrial margins apart from the Ohio workers’ compensation refunds and related adjustments.
- Confirm the terms, utilization, borrowing-base availability, covenants and fees of the CIT facility, and the company’s post-refinancing interest and liquidity position.
- Monitor PPP forgiveness outcomes and repayment obligations, as well as scheduled deferred payroll-tax payments.
- Evaluate the dilution from the offering: approximately 95.8 million new shares were issued, bringing reported shares outstanding to 113.5 million by May 14.
- Reconcile the reported March 31 debt and liquidity with the subsequent MGG repayment, CIT borrowing and associated fees and write-off.