GEE Group Inc.

Good morning and welcome to the GE Group fiscal fourth quarter and year-ended September 30th, 2022 earnings and 2023 update webcast conference call. I'm Derek Duan, Chairman and Chief Executive Officer of GE 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 for joining us today. It's our pleasure to share with you GE Group's results for the fiscal year and for the fourth quarter ended September 30th, 2022, and also to provide you with our outlook for fiscal year 2023 and the foreseeable future. Some comments 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 risks and uncertainties that actual results may differ materially from our forward-looking statements. These risks and uncertainties are described in Tuesday's earnings press release and our most recent 10-K and other SEC filings under the captions, Cautionary Statement Regarding Forward-Looking Statements and Forward-Looking Statements, Safe Harbor. We assume no obligations to update the statements made on today's call. During this presentation, we will also talk about some non-GAAP financial measures, and reconciliations and explanations of these metrics are included in the earnings press release. Our presentation of financial amounts and related amounts, including growth rates, margins and trends, and metrics are rounded or based upon rounded amounts for purposes of this call, and all amounts and 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. With that business behind us, I'm very happy to report that we achieved outstanding results in the fiscal year 2022 with revenue of $165.1 million for the year and revenue for our fiscal fourth quarter of $41.5 million. Gross profits and gross margins were $61.7 million and $15.1 million, and 37.4% and 36.3% for the fiscal year and fourth quarter ended September 30, 2022, respectively. Our non-GAAP adjusted EBITDA for fiscal 2022 was $12.5 million, up $200,000 or 2% compared to fiscal 2021, and that represents a 7.5% margin to revenue. Non-GAAP adjusted EBITDA for the fiscal 2022 fourth quarter was $1 million compared to $3.6 million for the fiscal 2021 fourth quarter. We achieved net income of $19.6 million, or $0.17 per diluted share, for fiscal 2022 overall. We reported a small net loss of $800,000, or $0.01 per diluted share, for fiscal 2022 fourth quarter. Before I turn it over to Kim, I want to say how very proud I am of our dedicated and talented people. They work extremely hard every day to ensure that our clients get the very best service. This was a key factor in the outstanding performance of GEE Group in fiscal 2022 and will contribute greatly to the company's future success. At this time, I'd like to turn over the call to our CFO, Kim Thorpe, who will further elaborate on our fiscal 2022 annual and fourth quarter results. Kim?

Derek, thank you very much, and good morning, everyone. As Derek mentioned, revenues for fiscal 2022 were $165.1 million, up 11% as compared with fiscal 2021 revenues of $148.9 million. Revenues for the fourth quarter of fiscal 2022, once again, were $41.5 million, up slightly as compared with revenues reported for the fiscal 2021 fourth quarter. Contract staffing services contributed $138.5 million and $35 million, or 84% of revenues for both the fiscal year and fourth quarter ended September 30, 2022, respectively. Direct higher placement revenues contributed $26.6 million and $6.5 million, or in both cases, 16% of revenues for the fiscal year and fourth quarters ended September 30, 2022, respectively. Contract staffing services revenues for fiscal 2022 increased $8.7 million, or 7%, as compared to fiscal 2021. Contract staffing services revenues were near level for each of fiscal 2022 and 2021 fourth quarters, although up slightly in the 2022 fourth quarter. Direct hire placement revenues for fiscal 2022 increased by $7.5 million, or 39%, as compared to fiscal 2021. Direct hire placement revenues, again, were near level for each of fiscal 2022 2022 and 2021 fourth quarters. Direct hire placement revenues for fiscal 2022 set a record high for the company, exceeding even pre-COVID-19 results. The increases in total contract and direct hire placement services revenues for the fiscal year ended September 30, 2022, were primarily attributable to increased demand in our professional staffing services segment as the negative effects of COVID-19 have continued to lessen. In addition, the volatility experienced in the U.S. economy and workforce in 2022 created many opportunities and increased demand, particularly in the direct higher placement services market. Total revenues from our professional staffing services segment, which includes contract staffing and direct higher placement services, were $149.2 million and $37.5 million and represented 90% of total revenue for both fiscal year and fourth quarter ended September 30, 2022, respectively. Professional staffing services revenues were up 13% and 1% respectively from the comparable fiscal 2021 periods. Our highly specialized IT services vertical which includes Agile Resources, Access Data Consulting, Paladin Consulting, and SNIT Brands, accounted for 51% of our professional services business segment revenues for fiscal 2022, and we're up 23% year over year. The other professional services verticals, Finance, Accounting, Office Support, Engineering, Healthcare, and others, accounted for the remaining 49% of professional services business revenues for fiscal 2022 and were up 5% year over year. Industrial staffing services revenues were $15.9 million and $4 million and represented 10% of total revenue for both fiscal year and fourth quarter ended 20, I'm sorry, September 30, 2022 respectively. Industrial staffing services revenues were down 8% and 9% respectively from the comparable fiscal 2021 periods. We continue to experience some pandemic-related conditions associated with the Delta and then Omicron variants, Omicron, excuse me, in our Ohio markets in the earlier quarters of fiscal 2022. These included school and business closings and interruptions we've commented on before. which were reminiscent in some respects of the early COVID-19 pandemic. Consolidated gross profits and margins were $61.7 million, or 37.4%, and $15.1 million, or 36.3%, for the fiscal year and fourth quarter ended September 30, 2022, respectively. Our consolidated gross margins for the last six quarters have consistently been above 36%, The overall improvement in the company's combined gross profit margin is largely due to substantial increases in direct higher placement revenues, which have grown, well, I'm sorry, which have 100% gross margins. Selling general and administrative expenses for the fiscal year and fourth quarter ended September 30, 2022, increased $10.3 million and $2.6 million, respectively. SG&A expenses were 31.4% and 34.8% of revenue for the fiscal year and fourth quarter into September 30, 2022, respectively, compared with 28% and 28.6% for the comparable fiscal 2021 periods. In addition to overall growth of the business, resulting in additional incentive compensation and bonuses, The increases in SG&A expenses and ratios were affected by $800,000 in charges associated with two former positions that were eliminated during fiscal 2022. Also a $400,000 increase in bad debt expense associated with one of the company's former industrial staffing services customers and a million dollars in charges for the settlement of an old legal matter that added to our SG&A expenses in the earlier quarters of fiscal 2022. As Derek mentioned in his remarks, we achieved net income for fiscal 2022 of $19.6 million, or 17 cents per diluted share, as compared with net income of $6,000, or near break even, zero cents per diluted share rounded for fiscal 2021. There was also a small net loss for the fiscal 2022 fourth quarter of $800,000, or approximately one cent per diluted share, as compared with net income of $2.9 million, or three cents per diluted share for the comparable fiscal 2021 quarter. Non-GAAP adjusted net income loss and diluted EPS, excluding the effects of non-operating and or non-recurring items, as outlined in the earnings press release, were $7.7 million, or 7 cents per diluted share and a loss of $400,000, excuse me, or 0 cents per diluted share for the fiscal year and fourth quarter ended September 30, 2022. Adjusted EBITDA, which is a non-GAAP financial measure, was $12.5 million for the fiscal year of $200,000 or 2% compared with fiscal 2021. Non-gap adjusted EBITDA for the fiscal 2022 fourth quarter was $1 million compared to $3.6 million for the comparable fiscal 2021 fourth quarter. Again, our fourth quarter results were impacted by the accrual of additional incentive compensation and bonuses commensurate with the significant improvements in revenues, earnings, and productions we produced in fiscal 2022. As we've commented in prior years, or I'm sorry, in prior quarters, we believe these types of positive results are sustainable. A reconciliation of G Group's gap net income to the company's non-GAAP adjusted EBITDA and reconciliations of other non-GAAP measures with their GAAP counterparts discussed today can be found in the supplemental schedules as part of our Earnings Press release. To conclude, our current Our current or working capital ratio at September 30, 2022, was 2.7 to 1. Consolidated accounts receivable net of allowances for doubtful accounts at the end of fiscal 2022 were $22.8 million, and our day sales outstanding performance metric, or DSO, was approximately 49 days. We reported positive net cash flow from operating activities of $1.4 million for the 2022 fiscal fourth quarter and $9.2 million during the fiscal 2022 year as a whole, and non-GAAP free cash flow of $1.3 million and $8.9 million, respectively. Our cash flow from operations and free cash flow for the year ended September 30, 2022 were reduced in part by payment of the first of two equal installments, of deferred FICA obligations allowed us under the CARES Act of $1.8 million, which was made in December of 2021, and the payment of $1 million in settlement of an old isolated legal matter that was made in April 2022. Our liquidity position is strong. We have no outstanding debt and our net book value per share was $0.88 at September 30, 2022, and our net tangible book value per share was 25%, both up over the prior year. Now I'll turn it back over to Derek.

Thank you, Kim. The 2022 fiscal fourth quarter and fiscal year marked our fifth consecutive quarter and first full year of strong performance since D-Level Company. Having consistently achieved higher margins and free cash flow for the last five quarters, we are establishing a positive sustainable track record as well as positive momentum for the future. On September 30, 2022, the company had over $18.8 million in cash and another $15.4 million in availability under its ABL facility. GE Group's prospects for today and for future profitable growth have never been better. Despite macroeconomic challenges or unforeseen events, we believe we can continue to produce solid results in fiscal year 2023 and beyond. Before we pause to take your questions, I want again to say thank you to all of our wonderful people for their professionalism, hard work, and dedication. Without them, we could not have accomplished all the good things we shared with you today. If you have questions, please submit those by email and we'll start the queue at that point. Please just ask one question and rejoin the queue with a follow-up as needed. At this time, we'll come back to you as well. Thank you, and we'll start the Q&A session. One of the first questions is related to the fourth quarter, and the revenue in our fourth quarter was very similar to the fourth quarter of fiscal 2021. However, the SG&A was higher and thus net income and adjusted EBITDA were lower. Kim, will you address that for me, please? Sure. The question was, why is your EBITDA lower and what caused your SG&A to increase?