GEE Group Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2013. The filing is unaudited. GEE Group provides professional, agricultural, and light-industrial staffing and placement services. Amounts below are in thousands of dollars unless stated otherwise.
Financial performance
| Metric | Three months ended Mar. 31, 2013 | Prior-year quarter | Six months ended Mar. 31, 2013 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $13,551 | $12,702 | $28,194 | $25,482 |
| Operating loss | $(772) | $(460) | $(516) | $(385) |
| Net loss | $(826) | $(515) | $(641) | $(492) |
| Basic and diluted loss per share | $(0.04) | $(0.02) | $(0.03) | $(0.02) |
- Quarterly revenue grew 7%; six-month revenue grew 11%. Direct-hire placement revenue rose 26% for the quarter and 20% for the six months. Contract revenue growth was partly offset by weaker agricultural revenue over the six-month period.
- Combined gross margin was 13.4% for the quarter, down from 14.7%; for the six months it was 15.0%, up from 14.6%. Professional contract margins improved, while industrial and agricultural margins were lower in the six-month comparison.
- SG&A increased 18% in both comparisons: to $4,291 for the quarter and $8,161 for six months. Management attributed the increase to business growth and elevated professional-service expenses. Contract-services costs rose 5% for the quarter and 9% for six months.
- Quarterly interest expense was $46, versus $55; six-month interest expense was $117, versus $107. The filing reports no positive operating or net income.
Cash, liquidity, and debt
- At March 31, cash was $37, compared with $364 at September 30, 2012. Working capital was approximately $22, down approximately $508 from September 30.
- For the six months, operating cash use was $335, investing cash use was $180, and financing provided $188; cash declined by $327.
- Short-term debt was $2,592, up from $2,404 at September 30; additional availability under the Wells Fargo receivables facility was approximately $500. The facility’s stated maximum is $4,500, with a 5.75% effective rate at period-end. Long-term liabilities were $213.
- Current assets were $7,546 and current liabilities $7,524. Shareholders’ equity was $3,474, down from $4,105 at September 30.
- The company leases its facilities and reported $2,322 of future minimum lease payments under qualifying non-cancelable leases.
Changes, outlook, and risks
- Quarterly revenue growth included higher placement, professional, and agricultural revenue, partly offset by a 3% decline in industrial revenue. For the six months, industrial revenue rose 14%, while agricultural revenue fell 14%. Management linked some contract-services growth to Hurricane Sandy cleanup, a new office, and new customers.
- Management expected unusually high professional-service expenses to fall significantly in the third quarter and expected expense growth to moderate as acquisitions were consolidated. The company does not provide financial forecasts.
- On April 22, 2013, after quarter-end, GEE Group finalized an amendment settling amounts owed to DMCC Staffing and RFFG of Cleveland. Consideration includes $550–$650 in cash, depending on payment timing, and 1.1 million shares; the filing says approximately $870 was accrued as a short-term liability. The cash and share amounts are reported separately in the filing.
- The Wells Fargo facility runs to December 14, 2013, but Wells Fargo may shorten its term following specified events, including matters related to a stockholder-ownership lawsuit, financial-statement delivery or acceptability, officer background checks, or board changes. The filing says the company had not received notice of shortening and was in covenant compliance. Management believed available facility capacity and cash flows would fund the next 12 months; the very low reported cash balance and limited unused facility availability are relevant liquidity risks.
- The filing identifies potential successor-liability claims related to acquired businesses, though no additional claims beyond the Ohio Bureau of Workers Compensation matter had been noticed; that $229 lien was settled. It also notes possible limits on use of tax-loss carryforwards following a change in control.
- Norco Accounting & Consulting, 50% owned by the new CFO, charged approximately $63 for services and $13 in related expenses during the quarter. The company said it no longer used Norco.
Important facts for investors to verify
- Whether Wells Fargo continued the receivables facility on its stated terms and whether borrowing availability remained adequate.
- The final cash payment schedule and accounting treatment for the DMCC/RFFG settlement, including the 1.1 million-share issuance and accrued liability.
- Whether management’s expected reduction in professional-service expenses occurred and improved operating results.
- Developments in the stockholder-ownership litigation and any additional claims associated with acquired businesses.
- The causes and sustainability of the sharp cash decline, near-zero working capital, and continued operating cash outflows.