GEE Group Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter ended June 30, 2015; results cover the three and nine months ended June 30, 2015. Financial statement amounts are in thousands of dollars, except per-share data. The statements are unaudited.
Business context
GEE Group provides contract staffing and direct-hire placement, including professional, industrial, and medical staffing. Its April 1, 2015 acquisition of Scribe Solutions added medical-scribe services. The company reported two operating segments: contract staffing and direct-hire placement.
Financial performance and position
| Metric | Three months ended June 30, 2015 | Three months ended June 30, 2014 | Nine months ended June 30, 2015 | Nine months ended June 30, 2014 |
|---|---|---|---|---|
| Net revenue | $11,450 | $9,923 | $30,928 | $30,364 |
| Operating income (loss) | $207 | $(544) | $(443) | $(1,290) |
| Net income (loss) | $118 | $(634) | $(3,334) | $(1,588) |
| Net loss attributable to common stockholders | $(52) | $(634) | $(3,541) | $(1,588) |
| Basic loss per share | $(0.00) | $(0.02) | $(0.13) | $(0.07) |
- Quarterly revenue increased 15%; nine-month revenue rose 2%. Third-quarter growth included approximately $998 of Scribe revenue. Nine-month direct-hire revenue declined 7%, while contract revenue increased.
- Combined gross margin was 31.85% for the quarter and 30.52% for the nine-month period, compared with 29.8% and 29.9%, respectively, in the prior-year periods. The filing attributes improvement partly to lower Ohio workers’ compensation rates and improved segment margins.
- Quarterly SG&A declined 3% to $3,301; nine-month SG&A declined 5% to $9,578. Nine-month interest expense increased 36% to $406.
- Nine-month operating cash flow was negative $1,510, versus negative $72 in 2014. Investing cash flow was negative $130; financing cash flow was positive $2,585. Cash increased to $1,113 from $168 at September 30, 2014.
- At June 30, current assets were $7,241 and current liabilities $5,732, yielding working capital of approximately $1,509. Short-term debt was $3,197; $783 was available under the revolving facility. The company reported compliance with its financial and administrative covenants.
- Total assets were $17,520, including $6,396 of goodwill and $3,469 of net intangible assets. Shareholders’ equity was $11,788. The company had no convertible-note balance at quarter-end after Brio converted the remaining note into common shares.
Material changes and notable events
- Scribe was acquired for consideration valued at approximately $7.7 million, primarily 640,000 preferred shares and warrants. The acquisition increased goodwill and intangible assets. The filing’s unaudited pro forma information shows nine-month 2015 revenue of $33.1 million and net loss of $3.2 million as if Scribe had been acquired at the start of the period.
- The nine-month net loss included a $2,251 loss from the change in fair value of a derivative liability and a $234 loss on debt extinguishment. In the third quarter, the company recorded a $68 gain related to the derivative and a $24 debt-extinguishment loss.
- After quarter-end, all 829,500 preferred shares and accrued amounts converted into 43,210,673 common shares. The company reported 88,913,252 common shares outstanding as of August 14, 2015.
- A July 2015 public offering generated approximately $7.8 million in net proceeds and issued 12,460,000 common shares, including the underwriters’ over-allotment. The filing reports the underwriters’ warrant exercise price as $0.84 in one section and $0.83 in another.
- On July 31, 2015, the company acquired Agile Resources for estimated consideration of approximately $3.865 million, including about $3.0 million cash and 1,201,923 common shares. The purchase-price allocation was preliminary.
Outlook, risks, and contingencies
The company does not provide forecasts. Management said it expected current operating cash flow, preferred financing, and availability under the ACF facility to provide sufficient liquidity for the next 12 months. Management also expected expenses to stabilize and slightly decrease as acquisition integration progressed. These expectations depend on operating performance and access to financing.
The filing identifies risks including general business conditions, demand for staffing services, competition, attracting and retaining qualified staff and managers, and potential liability arising from business activities and contract employees. The secured $6 million ACF revolving facility bears interest at 6.5% at June 30, 2015, is secured by company assets, and has lender-set future EBITDA covenant requirements. The company reported no material legal proceedings pending as of June 30, 2015.
Investor facts to verify
- Whether operating cash flow improves and the company maintains adequate borrowing availability and compliance with ACF covenants.
- The extent to which Scribe and Agile contribute revenue, margins, and cash generation, and whether acquisition valuations and purchase-price allocations hold up.
- The dilution impact of preferred conversions, the public offering, acquisition shares, and outstanding warrants and other equity-linked instruments.
- The reconciliation of the reported underwriters’ warrant exercise price ($0.84 versus $0.83) and the final terms of post-quarter transactions.
- Whether reported revenue growth and margin gains persist despite weaker direct-hire results and management’s acknowledged recruiting-experience challenges.