GEE Group Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended September 30, 2022; comparison is fiscal 2021. GEE Group (NYSE American: JOB) provides professional and industrial temporary staffing and permanent-placement services across the U.S. Figures below are in U.S. dollars; financial amounts are shown in millions unless noted.
Financial performance and liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $165.1 | $148.9 | +11% |
| Gross profit / combined gross margin | $61.7 / 37.4% | $52.5 / 35.3% | Margin +2.1 percentage points |
| Income from operations | $3.8 | $6.5 | Down $2.7 |
| Net income | $19.6 | $0.006 | Up substantially, largely due to PPP loan forgiveness |
| Diluted earnings per share | $0.17 | $0.00 | |
| Cash from operating activities | $9.2 | $0.4 | |
| Cash at year-end | $18.8 | $9.9 | Up $8.9 |
| Working capital | $26.6 | $2.5 |
- Revenue mix shifted: contract staffing generated $138.5 million (84% of revenue), while direct-hire placements generated $26.6 million (16%). Professional contract revenue rose 9% to $122.6 million; industrial contract revenue fell 8% to $15.9 million; direct-hire revenue rose 39%.
- Professional contract gross margin was 26.6%, versus 26.3%; industrial contract margin was 15.4%, versus 22.3%. The industrial comparison was affected by lower Ohio workers’ compensation premium refunds; excluding those refunds, management reported approximately 14.9% margin in both years. Higher direct-hire mix contributed to the improved combined margin.
- SG&A rose $10.3 million to $51.9 million, or about 31% of revenue versus 28%. Reported contributors included growth-related incentive compensation, wage and inflation increases, $0.4 million of additional bad-debt expense, a $0.975 million legal settlement, and $0.838 million of severance charges.
- Operating income included a $2.15 million non-cash goodwill impairment charge. Fiscal 2022 net income also included a $16.773 million gain from forgiveness of remaining PPP loans. Interest expense fell to $0.377 million from $5.878 million after repayment of the former high-cost credit agreement in April 2021. Net income therefore substantially overstates recurring operating performance.
- No borrowings were outstanding under the $20 million asset-based CIT revolving facility at September 30, 2022; reported borrowing availability was $15.352 million, subject to an accounts-receivable borrowing base and covenants. The facility matures May 14, 2026 and is secured by company and subsidiary assets. The former MGG debt was repaid in 2021.
- Management said cash and working capital were adequate to meet obligations for the foreseeable future and at least one year after filing. Expected operating-lease payments for the next 12 months were about $1.472 million; no debt-service principal was due in that period.
Material changes and management commentary
- Management attributed professional staffing and direct-hire growth to post-pandemic recovery and higher demand, including companies’ preference for permanent hires in some roles. Industrial demand was affected by COVID-19 variants and continuing labor shortages; staffing constraints also limited the company’s ability to fill some orders.
- Fiscal 2022 operating income declined despite revenue growth, reflecting higher operating costs, the legal and severance charges, bad debt, and goodwill impairment. Goodwill was $61.3 million at year-end; the annual September 2022 assessment found no impairment after the $2.15 million interim charge in the first fiscal quarter.
- GEE Group settled related lawsuits in March 2022 for approximately $1.175 million total; the company paid $0.975 million and insurance covered the balance. The company admitted no wrongdoing. Management reported no other pending significant proceedings it expected to materially affect financial position.
- All nine PPP loans had been forgiven, but the aggregate exceeded the SBA audit threshold. A future SBA audit could reinstate some or all amounts, requiring repayment.
- The company reported a February 2022 network intrusion involving system encryption and a demand for payment. Investigation found that a relatively small amount of data, including some personal information, was acquired. Management described the response costs as immaterial and operations as minimally affected; affected individuals were being notified.
- Management cited historically high inflation, rising interest rates, recession risk, geopolitical uncertainty, labor shortages, and possible renewed COVID-19 impacts as risks to hiring demand, costs, and operations. It provided no specific numerical revenue or earnings guidance in the supplied filing text. Its stated strategy emphasizes organic growth, efficiency, and selective acquisitions.
Key risks and items to verify
- How much of FY2022’s earnings and cash generation is repeatable after excluding the PPP forgiveness gain and the year’s other unusual charges?
- What is the status and potential exposure from the SBA review of forgiven PPP loans, and has the remaining deferred payroll tax obligation been paid as scheduled by December 31, 2022?
- Are receivables collectible as expected? The allowance for doubtful accounts rose to $0.738 million from $0.286 million, and the filing cites a customer-related bad-debt charge.
- Can the company maintain staffing demand and fill orders amid recession risk, inflation, competition, customer cancellation rights, and worker shortages? Industrial revenue and margin weakened year over year.
- How much liquidity is actually available under the receivables-based CIT facility in changing conditions, and can the company comply with its covenants and borrowing-base requirements?
- Monitor goodwill valuation assumptions and the $61.3 million goodwill balance, as well as the outcome of the cyber incident and any related claims or remediation costs.