GEE Group Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2023. Amounts below are in millions unless otherwise stated; the unaudited filing presents financial statements in thousands. GEE Group provides professional and industrial staffing, including contract staffing and direct-hire placement.
Financial performance
| Metric | Three months ended June 30, 2023 | Nine months ended June 30, 2023 |
|---|---|---|
| Revenue | $38.2; down 7% year over year | $118.2; down 4% |
| Gross profit / gross margin | $13.7 / 35.8%, versus $16.5 / 40.1% | $41.3 / 34.9%, versus $46.6 / 37.7% |
| Operating income | $1.1, versus $2.8 | $2.5, versus $4.0 |
| Net income | $7.9, versus $2.6 | $9.2, versus $20.4 |
| Operating cash flow | Quarterly figure not provided in the supplied filing text | $2.6, versus $7.9 |
Quarterly revenue included $33.0 million of contract staffing and $5.2 million of direct-hire placements. Contract revenue was nearly flat overall: professional contract revenue rose 3% while industrial contract revenue fell 23%. Direct-hire revenue declined 35%, following unusually strong demand in the prior-year quarter. For the nine months, professional contract revenue increased 1%, while industrial contract and direct-hire revenue declined 16% and 21%, respectively.
Quarterly net income included a $6.8 million income-tax benefit; the company released $6.9 million of valuation allowance after concluding deferred tax assets were more likely than not realizable. Thus, the increase in quarterly net income did not reflect stronger operating income. Nine-month 2022 net income included a $16.8 million gain from forgiveness of PPP loans, partly offset by a $2.2 million goodwill impairment charge. Nine-month 2023 net income also included the deferred-tax benefit.
Liquidity, debt, and balance sheet
- Cash was $20.7 million at June 30, 2023, up $1.9 million from September 30, 2022. Working capital was $31.3 million, compared with $26.6 million.
- Operating cash flow was $2.6 million for the nine months, down from $7.9 million. Investing cash use was $0.1 million; financing cash use was $0.6 million, including $0.5 million of treasury-stock purchases.
- No borrowings were outstanding under the asset-based revolving credit facility; reported borrowing availability was $12.4 million. The $20 million facility matures in May 2026 and is subject to borrowing-base requirements, covenants, and customary default provisions.
- At June 30, operating lease liabilities were $4.3 million and finance lease liabilities were $0.4 million. Management reported no minimum debt-service principal payments due in the following 12 months and approximately $1.7 million of minimum lease payments for that period.
Changes, outlook, and risks
- Quarterly SG&A declined 9% year over year, which management attributed mainly to cost reductions implemented in February and March 2023. Those reductions were estimated to produce approximately $4.0 million of annual savings. Nine-month SG&A fell 3%; prior-year expenses included a legal settlement and severance costs.
- Professional contract margins were pressured by inflation and higher contractor pay. Management described efforts to raise bill rates and spreads where possible. Industrial contract margins improved year over year, including after adjusting for workers’ compensation premium refunds.
- Management expressed cautious optimism about growth, particularly in IT and other professional staffing, while citing economic and labor-market uncertainty. The company does not provide forecasts.
- The board authorized a share repurchase program of up to $20 million through December 31, 2023, subject to conditions; it is discretionary and may be suspended. The company repurchased approximately 870,627 shares for about $0.5 million through June 30 and reported approximately 1.455 million shares repurchased by August 11.
- The company disclosed bank deposits exceeding FDIC insurance limits, while stating it had diversified deposits and placed $13 million in a program allocating funds among FDIC-insured banks. Staffing demand, competition for workers and orders, inflation, client liability, cyber risks, and the ability to recruit and retain staff are also identified risks.
- Previously forgiven PPP loans may be audited by the SBA; if forgiveness is reversed in whole or part, the company could face repayment obligations. Management reported no other pending significant legal proceeding believed likely to materially harm its financial position.
Investor verification points
- Assess whether staffing demand and direct-hire placements stabilize, and whether professional growth offsets weakness in industrial staffing.
- Separate underlying operating performance from the one-time deferred-tax benefit and prior-year PPP forgiveness gain when comparing earnings.
- Review the realizability assumptions supporting deferred tax assets and the impact if those assumptions change.
- Confirm borrowing-base availability and covenant compliance, and monitor cash concentration and FDIC coverage.
- Track share repurchases against the authorization, cash needs, and outstanding share counts; the filing reports different share-count dates and bases.
- Monitor any SBA review of forgiven PPP loans and the potential repayment exposure.