GEE Group Inc. — Form 10-Q Summary
Reporting period: The filing covers the quarter and six months ended March 31, 2012, corresponding to fiscal Q2 2012. The request metadata says “2011 Q2,” but the filing itself is for 2012. Amounts below are in thousands of dollars except per-share data.
Business context and results
The company provides direct-hire placement and temporary staffing in professional, agricultural, and light-industrial markets. It attributed much of its year-over-year growth to the Ashley Ellis acquisition and industrial staffing start-ups. The company operated 18 branch offices in 11 states.
| Metric | Three months ended March 31, 2012 | Six months ended March 31, 2012 | Comparable 2011 period |
|---|---|---|---|
| Net revenue | $12,702; up 60.7% | $25,482; up 83.7% | $7,904 quarter; $13,875 six months |
| Operating loss | $(460) | $(385) | $(79) quarter; $(52) six months |
| Net loss | $(515) | $(492) | $(104) quarter; $(90) six months |
| Basic and diluted loss per share | $(0.02) | $(0.02) | $(0.01) for both comparable periods |
| Operating cash flow | Not separately presented | $(174) | $(1,616) for six months |
Margins, financial position, and cash flow
- Contract-service costs were 85.3% of contract-service revenue in the quarter, versus 87.6% in 2011; for six months, 85.4% versus 86.2%. Professional contract staffing margins improved, while agricultural staffing remained low-margin and industrial staffing margins weakened for the six-month comparison.
- Quarterly SG&A increased 79.0% to $3,624; six-month SG&A increased 83.7% to $6,907. Management cited the expanded organization and changes to professional-services compensation, which had not yet been offset by operating leverage. Interest expense was $55 for the quarter and $107 for six months, up from $25 and $38.
- At March 31, cash was $95, down from $314 at September 30, 2011. Current assets were $6,841 and current liabilities $6,339, yielding working capital of $502 and a 1.1-to-1 current ratio. Total assets were $11,160; total liabilities were $6,912; shareholders’ equity was $4,248.
- Short-term debt was $2,299, compared with $1,938 at September 30, 2011; long-term obligations were $573. The Wells Fargo receivables facility had a $4,500 maximum after a February 2012 amendment, but borrowing-base availability was $639 at quarter-end. Its stated rate was 5.75%; the company reported covenant compliance.
- Six-month investing cash outflow was $406, including a $200 Ashley Ellis payment and property/equipment purchases. Financing provided $361, primarily through increased facility borrowings. Cash declined by $219 over the six months.
Material changes, outlook, and risks
- Industrial contract revenue rose to $7,254 for the quarter from $1,991; agricultural revenue fell to $1,787 from $3,035, in part after the loss of a major customer in January 2012. Management-services revenue ceased following termination of the RFFG agreement in July 2011.
- The company does not provide forecasts. Management said it believed the credit facility would support operations and working-capital growth, but warned that reduced lender advances or acquired-business performance below expectations could constrain liquidity.
- The company accrued approximately $1,000 of estimated earn-out payments tied to the DMCC/RFFG acquisition; $585 was currently due. It also disclosed a $381 remaining liability under a former CEO consulting agreement and approximately $380 of recruitment-advertising commitments through December 2012.
- In March 2012, the company learned of a $229 Ohio Bureau of Workers’ Compensation lien, believed to relate to premiums from before the RFFG of Cleveland acquisition. The company said it was defending its position. RFFG had ceased operations in July 2011 amid an unresolved Ohio workers’ compensation issue; a $137 management-fee receivable remained at March 31.
- Ashley Ellis was acquired from an entity owned by the brother of the company’s president, for cash payments totaling $400 and 1.25 million restricted shares valued at $331. The DMCC/RFFG transaction also involved a former approximately 9.9% shareholder and potential performance-based earn-outs.
- The largest customer represented 10.4% of quarterly revenue, with $872 in receivables. Management cited general business conditions, demand, competition, staffing and retention, and potential liability related to contract employees as risks. Management reported effective disclosure controls and no material quarterly change in internal controls.
Important facts for investors to verify
- Available borrowing capacity under the receivables facility, lender eligibility decisions, and covenant compliance as working-capital needs evolve.
- Collection and recoverability of the $137 RFFG management-fee receivable and the $872 receivable from the largest customer.
- Outcome and potential financial effect of the $229 Ohio workers’ compensation lien.
- Actual earn-out obligations and payments under the DMCC/RFFG acquisition, including the $585 currently due.
- Whether revenue growth can translate into improved operating results given higher SG&A and continuing losses; also note the filing’s segment table reports six-month 2011 consolidated revenue of $11,512, while the statements of operations report $13,875.