GEE Group Inc. — Form 10-Q Summary
Business and period: GEE Group provides professional and industrial contract staffing and direct-hire placement services. This unaudited report covers the fiscal second quarter and six months ended March 31, 2023; financial amounts below are in thousands of dollars unless stated otherwise.
Financial performance
| Metric | Three months ended Mar. 31, 2023 | Prior-year quarter | Six months ended Mar. 31, 2023 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $38,859 | $39,629 | $80,007 | $82,476 |
| Gross profit | $13,216 | $14,514 | $27,607 | $30,096 |
| Gross margin | 34.0% | 36.6% | 34.5% | 36.5% |
| Operating income | $694 | $1,177 | $1,456 | $1,150 |
| Net income | $658 | $1,087 | $1,312 | $17,755 |
| Diluted EPS | $0.01 | $0.01 | $0.01 | $0.15 |
- Quarterly revenue declined 2%; contract staffing revenue rose 1% while direct-hire revenue fell 17%. For the six months, revenue declined 3%, including a 12% decrease in direct hire.
- Quarterly professional contract revenue increased 2% to $30,751; industrial contract revenue decreased 14% to $3,225. Management says professional contract revenue would have grown 5% excluding prior-year COVID-response projects. Six-month professional contract revenue was nearly flat as reported, but would have increased 5% excluding those projects.
- Professional contract gross margin declined to 25.4% from 26.9% in the quarter and to 25.4% from 27.0% for six months, which management attributed partly to wage inflation. Industrial contract margins improved year over year, supported by pricing and higher spreads.
- Quarterly operating income and net income decreased year over year. Six-month net income fell sharply from $17,755, principally because the prior-year period included a $16,773 gain from forgiveness of PPP loans; the prior period also included a $2,150 goodwill impairment charge.
- Six-month operating cash flow was $1,439, versus $4,456 a year earlier. Investing cash use was $84 and financing cash use was $104; cash increased $1,251 from September 30, 2022.
Financial position and liquidity
- At March 31, 2023, cash was $20,099, accounts receivable was $20,431, total assets were $118,109, and working capital was $29,928. Cash was $18,848 and working capital $26,643 at September 30, 2022.
- The company reported no outstanding borrowings under its $20 million asset-based revolving credit facility and $13,347 of borrowing availability. The facility matures May 14, 2026.
- There were no minimum debt-service principal payments due in the following 12 months. Lease obligations remain: operating lease liabilities totaled $4,328 and finance lease liabilities $461 at March 31, 2023. Estimated minimum lease payments for the next 12 months were approximately $1,682.
- Total liabilities were $15,294; shareholders’ equity was $102,815. Management stated it believes liquidity will be adequate for obligations for at least the next 12 months.
Changes, outlook, risks, and unusual items
- Management cited softer cyclical direct-hire demand after record fiscal 2022 activity, fewer industrial staffing orders, increased competition for industrial labor, and inflationary pressure on contractor pay and operating costs. It is seeking bill-rate and spread increases to mitigate margin pressure.
- Cost reductions implemented in February and March 2023 were estimated to produce approximately $4,000 in annual savings. The prior-year comparable period included a $975 legal-settlement charge and $510 severance expense.
- The company performed an interim goodwill impairment assessment at March 31, 2023, prompted by a larger discount of market capitalization to book value; it found no impairment.
- Management does not provide financial forecasts. The filing identifies risks including demand and competitive pressures, recruiting and retention, liability related to contract employees, cybersecurity, and broader economic conditions.
- Previously forgiven PPP loans may be subject to future SBA audit. If any forgiveness is reversed, repayment could be required; the amount, if any, is uncertain.
- The company disclosed uninsured bank deposits and banking-sector disruption risk. After quarter-end, it placed $13 million of excess cash in a program intended to allocate funds among FDIC-insured banks.
- After quarter-end, on April 27, 2023, the board authorized a share repurchase program of up to $20,000 through December 31, 2023. It is discretionary and does not require the company to repurchase shares.
Important facts for investors to verify
- Whether professional staffing growth and the announced cost savings can offset weaker direct-hire and industrial demand and ongoing wage inflation.
- How margins and operating cash generation develop, including the effect of working-capital movements and one-time items.
- Any outcome of the SBA review of forgiven PPP loans and any resulting repayment obligation.
- Actual use of the revolver, lease commitments, and the company’s liquidity after any share repurchases.
- Execution and results of the discretionary repurchase program, as well as the effectiveness of the post-quarter cash-deposit diversification measures.