GEE Group Inc. — Q1 FY2023 10-Q
Reporting period: Three months ended December 31, 2022; figures are unaudited and in millions of dollars unless stated otherwise. GEE Group provides professional and industrial contract staffing and direct-hire placement services.
Financial performance
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Revenue | $41.148 | $42.847 |
| Gross profit | $14.391 | $15.582 |
| Operating income (loss) | $0.762 | $(0.027) |
| Net income | $0.654 | $16.668 |
| Operating cash flow | $(0.326) | $2.264 |
- Revenue fell 4% year over year. Contract staffing provided $35.401 million (86% of revenue), and direct hire provided $5.747 million (14%).
- Combined gross margin was 35.0%, down from 36.4%; contract staffing gross margin was 24.4% overall, versus 25.7%. Professional contract margin declined to 25.4% from 27.0%, while industrial contract margin was 15.5% versus 15.3% (14.8% in the prior period excluding workers’ compensation refunds).
- SG&A rose $0.449 million to $12.808 million, or about 31% of revenue versus 29%. Management attributed the increase primarily to producer incentive compensation and awards. Share-based compensation was $0.374 million versus $0.147 million.
- Basic and diluted earnings per share were both $0.01, compared with $0.15 and $0.14, respectively, in the prior-year quarter.
Financial position and liquidity
- At December 31, cash was $18.472 million, total assets $116.156 million, and shareholders’ equity $102.031 million. Working capital was $28.536 million.
- Operating cash flow was negative $0.326 million; investing cash use was $0.050 million, with no financing cash flow. Cash decreased $0.376 million during the quarter. Management cited payment of the final deferred payroll-tax installment and annual incentive compensation as factors in the cash decline and operating cash use.
- No borrowings were outstanding under the $20 million asset-based revolving facility; borrowing availability was $13.029 million, subject to the borrowing-base formula and other conditions. The facility matures May 2026.
- Finance lease liabilities totaled $0.513 million; operating lease liabilities totaled $3.349 million. Management stated there were no minimum debt-service principal payments due in the next 12 months and believes liquidity will meet obligations for at least that period.
Changes, outlook, and risks
- Professional contract revenue decreased 2%, but would have increased 5% excluding $2.325 million of prior-year COVID-related vaccination and testing projects that later ended or downsized. Industrial contract revenue fell 12%, mainly due to lower client orders. Direct-hire revenue declined 7% as placement orders slowed amid economic uncertainty; management noted the prior fiscal year had record-level direct-hire revenue.
- Professional contract margin pressure reflected higher contractor pay and inflation; the company said it was increasing bill rates and spreads where possible. Amortization declined to $0.720 million from $1.014 million as certain assets became fully amortized.
- Prior-year comparisons are affected by unusual items: Q1 FY2022 included a $16.773 million gain from PPP loan forgiveness and a $2.150 million goodwill impairment charge. No goodwill impairment was recorded in the current quarter. Current-quarter operating improvement versus the prior year therefore does not translate into higher net income.
- The forgiven PPP loans remain subject to potential SBA audit. If any forgiveness is reversed, the affected amounts would need to be repaid; the filing says additional capital might be needed if liquidity or operating cash flow were insufficient.
- The company does not provide financial forecasts. Cited risks include economic conditions and demand, competition, attracting and retaining qualified staff, employment-related liabilities, cyber risks, and other risks in its annual report. Management reported effective disclosure controls and no material adverse pending legal proceedings.
Investor items to verify
- Whether the staffing-demand slowdown, especially in industrial and direct-hire markets, persists and how it affects revenue and margins.
- Whether bill-rate increases can offset contractor wage inflation and stabilize professional contract margins.
- Operating cash flow and working-capital trends after payroll-tax and incentive payments, alongside actual borrowing-base availability.
- Any SBA audit findings or repayment exposure related to the forgiven PPP loans.
- The effect of share-based compensation and future award grants on expenses and dilution.