GEE Group Inc.

Good morning, everyone. Thank you for joining the GEE group conference call regarding our fiscal second quarter. There is a slide presentation on the web. It's also on our website. And in this investor presentation, you can click through the slides if you like. We are not going to go over those slides today, but we will have follow-up questions at the end of this presentation. And you can submit those electronically as you have logged in to the site for doing that. Today, we're going to cover our fiscal second quarter and first half ended March 31, 2022. I'm Derek DeJuan, Chief Executive Officer and Chairman of GEE Group. I will be hosting today's call. And joining me as a co-presenter is Kim Thorpe. our Senior Vice President and Chief Financial Officer. Thank you all for joining us today. It's our pleasure to share with you GE Group's results for the fiscal 2022 second quarter and first half ended March 31, 2022, and provide you with our outlook for the second half of our 2022 fiscal year. Some comments that Kim and I will make may be considered forward-looking, including predictions and estimates about our future performance, These represent our current judgments of what the future holds and are subject to risk and uncertainties that actual results may differ materially from our forward-looking statements. These risks and uncertainties are described in Monday's earnings press release and our most recent Form 10Q and other SEC filings under the captions Cautionary Statements Regarding Forward-Looking Statements and Forward-Looking Statements Safe Harbor. We assume no obligation to update the statements made on today's call. During this presentation, we will also talk about some non-GAAP financial measures. Reconciliations and explanations of these measures are included in the earnings press release. Our presentation of financial amounts and related amounts, including growth rates, margins, and trends, are rounded, are based upon rounded amounts. For purposes of this call and all amounts, percentages and related items presented are approximations accordingly. For your convenience, our prepared remarks for today's call are available in the Investor Center of our website, www.gegroup.com. With that business behind us, I'm very happy to report that we achieved outstanding results for the second quarter and first half of our 2022 fiscal year, beginning with net income of $1.1 million or $0.01 per diluted share and $17.8 million or 15 cents per diluted share, respectively. Consolidated revenues were 39.6 million and 82.5 million, up 14 percent and 19 percent, respectively. And gross profits and gross margins were 14.5 million and 30.1 million, and the gross margin was 36.6 percent and 36.5 percent, respectively. Our non-GAAP adjusted EBITDA for the 2022 fiscal second quarter was $3.4 million, up $1.4 million, or 69% over the comparable prior year fiscal quarter, and which represents a 9% margin to revenue. Non-GAAP adjusted EBITDA for the first half of the 2022 fiscal year was $7.3 million, up $1.7 million, or 31% for our adjusted EBITDA, for the same first half of the 2021 fiscal year. Before I turn it over to Kim, I just want to say how very proud I am by the outstanding effort made by our dedicated and talented people. They work extremely hard every day to ensure that our clients get the very best service. This is one of the keys to our success. And at this time, I'd like to turn the call over to our CFO, Kim Thorpe, who will further elaborate on our results for the 2022 fiscal second quarter and year-to-date results. Kim?

Thank you, Derek, and good morning, everyone. As Derek mentioned, revenues for the fiscal 2022 second quarter and six-month periods ended March 31, 2022 were $39.6 million and $82.5 million, up 14% and 19% respectively over the comparable fiscal 2021 periods. Contract staffing services contributed $33.7 million and $70.4 million or 85% of our revenue and direct placement services contributed $5.9 million and $12 million or 15% of our revenue for both the three and six month periods ended March 31, 2022. Contract staffing services revenues increased $2.6 million and $8.1 million or 8% and 13% for the three and six month periods ended March 31, 2022 respectively. These increases are primarily due to increased demand in our professional contract services markets. as the negative effects of COVID-19 have lessened and the U.S. economy and workforce continued on recovery paths toward pre-COVID-19 conditions. Direct higher placement revenues for the three and six-month periods ended March 31, 2022 were 5.9 million and 12 million, up 61% and 71% respectively. They comprised 16% of our total revenues for the professional services business segment and 15% of all of our revenues. Revenues from our professional staffing services segment, which consists of the combination of contract staffing and direct hire, were $35.9 million and $74.7 million and represented 91% of total revenue for both the three and six month periods ended March 31, 2022, respectively. Our professional staffing services segment revenues were up 17% and 24% from the comparable fiscal 2021 periods. Our IT services in markets at Agile, AccessData, Paladin Consulting, and SNI IT accounted for 47% of our professional services business segment revenues and were up 21% year over year. The other professional services and markets, finance, accounting and administrative, office, engineering, healthcare and other accounted for the remaining 53% of our professional service business revenues and were up 36% year over year. Industrial staffing service revenues were $3.7 million and $7.8 million for the three and six-month periods ended March 31, 2022 respectively, compared to $4 million and $9.1 million for the three and six-month periods ended March 31, 2021. We continue to experience some pandemic-related conditions associated with the Delta and Omicron variants in our Ohio markets, including some school and business closings and interruptions, which were reminiscent in some respects of the early pre-COVID pandemic. Consolidated gross profits and margins were $14.5 million or 36.6% and $30.1 million or 36.5% for the three and six month periods ended March 31, 2022, both up substantially from comparable fiscal periods in 2021. Our professional contract staffing services gross margins, these are excluding direct placement services, for the three-month periods ended March 31, 2022, were 26.9% compared to 25.5% for the same period in 2021. Our consolidated gross margins for the last four consecutive quarters ending in the March 31, 2022 quarter, have all been above 36%. The overall improvement in the company's combined gross margin is largely due to increases in and resulting higher mixes of direct higher revenues, which have 100% gross margins. Selling general and administrative, or SG&A, expenses were approximately 31% and 30%, of consolidated revenues for the three and six month periods ended March 31, 2022, respectively, compared with 26 and 27% for the three month and six month periods ended March 31, 2021. The settlement of a legal matter for $975,000 accounted for more than half of the expense ratio increase for the second quarter. And in combination with a $509,000 severance charge taken during our fiscal first quarter into December 31, 21, these two items accounted for more than half of the expense increase for the year-to-date period. Another significant contributor to increases in our SG&A ratios are incrementally higher incentive and bonus compensation associated with significant revenue growth. As Derek mentioned in his remarks, we achieved net income for the three and six month periods ended March 31, 2022 of $1.1 million or a penny a share and $17.8 million or 15 cents per diluted share as compared with net losses in the prior period. Our pro forma, our non-GAAP adjusted net income and diluted EPS, excluding the effects of non-operating and or non-recurring items, which are outlined in our earnings press release, were $2.2 million, or two cents per diluted share, and $4.9 million, nearly $5 million, or four cents per diluted share, respectively, for the three and six-month periods ended March 31, 2022. Adjusted EBITDA, which is a non-GAAP measure, was $3.4 million for the 2022 fiscal second quarter, up $1.4 million or 69% over the comparable prior first year quarter. Non-GAAP adjusted EBITDA for the first half of our 2022 fiscal year was $7.3 million, up $1.7 million or 31% from our adjusted EBITDA for the first half of our 2021 fiscal year. As we've commented in prior quarters and assuming COVID-19 continues to lessen in severity and does not spike again, we believe these types of positive results are sustainable. A reconciliation of G Group's gap net income to the company's non-gap adjusted EBITDA and reconciliations of other non-gap measures and their gap counterparts discussed today can be found and the supplemental schedules in our earnings press release. To conclude, our current or working capital ratio at March 31, 2022 was 2.7 to 1. Consolidated accounts receivable net at the end of the 2022 fiscal second quarter were 21.2 million. And implied day sales outstanding or DSO was approximately 43 days. We reported positive cash flow from operating activities of $2.1 million for the 2022 fiscal second quarter and $4.4 million year to date, and non-GAAP free cash flow of $2 million and $4.2 million, respectively. Our liquidity position is strong. We have no outstanding debt. Our net book value per share was 87 cents per share at March 31, 2022. Now I'll turn the call back over to Derek. Derek?

Thank you, Kim. The 2022 fiscal second quarter was our third consecutive quarter of good performance since we fully deleveraged the company. We now have a great first half of our 2022 fiscal year to build upon. At March 31, 2022, the company had 14 million of cash in the bank and over 13 million in availability under GEE Group's bank ABL facility. Now that all of our former CARES Act PPP loans have been forgiven by the SBA, our debt leverage is nil. This all greatly enhances both the current enterprise value and financial fundamentals of our company and significantly improves GEE Group's prospects for future profitable growth in 2022 and beyond. We have been successful so far in sustaining momentum that began during the third and fourth quarters of fiscal 2021 and that has continued into fiscal 2022. Absent the onset of a recession or unforeseen events, we anticipate continued good results for the remainder of our 2022 fiscal year and beyond. Before we pause to take your questions, we again wish to thank our wonderful employees for their professionalism, hard work, and dedication, without which we could not have accomplished all the good things that we have done this quarter and this year so far. Now, Kim and I would be happy to answer your questions. Please ask this one question and rejoin the queue with a follow-up as needed. If there's time, we'll come back to you for additional questions. You'll submit them electronically, and we have several, so we'll start now. The first question is a question about the tax rate. The cash tax rate has so far been below the statutory rate, at least in regard to real operating income. Could we get some more explanation behind this and maybe get some information on what a realistic cash tax rate range looks like for the company? Are there any deductions that the company is able to take related to contract workers that might push the statutory rate below 21%? Kim, would you comment on the tax rate, please?