GEE Group Inc.

Hello and welcome to the GEE Group Fiscal 2023 first quarter ended December 31st, 2022 earnings and update webcast conference call. I'm Derek Dewan, the Chairman and CEO 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 for joining us today. It's our pleasure to share with you GE Group's results for the 2023 fiscal first quarter ended December 31, 2022, and provide you with our outlook for the remainder of the 2023 fiscal year and the foreseeable future. Some comments Kim and I will make today may be considered forward-looking, including predictions, estimates, expectations, and other statements 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 below under the caption forward-looking statement safe harbor and in Tuesday's earnings press release and our most recent form 10Q, 10K, and other SEC filings under the captions cautionary statement regarding forward-looking statements and forward-looking statements. We assume no obligation to update statements made on today's call. During this presentation, we also will talk about some non-GAAP financial measures, reconciliations and explanations of the non-GAAP measures we will address today are included in the earnings press release. Our presentation of financial amounts and related items, including growth rates, margins, and trend metrics, are rounded or 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.geegroup.com. We once again achieved very good results in fiscal 2023 first quarter, beginning with consolidated revenues of 41.1 million. Our consolidated gross profit and gross margin were 14.4 million and 35% respectively for the first fiscal quarter ended December 31, 2022. Our consolidated non-GAAP adjusted EBITDA for the 2023 first quarter was two million. We achieved consolidated net income of 700,000 or one cent per diluted share for our fiscal 2023 first quarter. As Kim will explain further, the prior year first quarter results were above average due to peak demand for direct hire and a significant amount of current COVID-19 related project work. The current fiscal first quarter still compares favorably, taking into account the unique opportunities present in last year's first quarter, and particularly in terms of growth in our professional IT contract businesses. Before I turn it over to Kim, I want to say thank you to our wonderful dedicated employees and associates. They work extremely hard every day to ensure that our clients get the very best service. This was a key factor in the stellar performance of GE Group in fiscal 2022, and so far in fiscal 2023, and will continue to be the most important underpinning of our company's future success. At this time, I'll turn over the call to our CFO, Kim Thorpe, who will further elaborate on our fiscal 2023 first quarter results. Kim.

Thank you, Derek, and good morning. Once again, revenue for the fiscal 2023 first quarter was $41.1 million, which is $1.7 million or 4% lower compared with the fiscal 2022 first quarter revenue of $42.8 million. As Derek alluded to, revenue for the prior fiscal 2022 first quarter included above average performance in our direct higher revenue as well as professional contract revenue of $2.3 million generated from the discrete projects for clients serving as COVID-19 responders. The COVID-19 related projects successfully concluded during December 2021 and January 2022 and are non-recurring in nature. Excluding the effects of them alone, our remaining total revenue increased $600,000 or approximately 2% quarter over quarter. Professional and industrial contract staffing services revenues for fiscal 2023's first quarter were $35.4 million, which again is $1.3 million or 3% lower as compared to fiscal 2022's first quarter contract staffing services revenue. Professional contract staffing services revenue, which represents 90% of all contract services revenue and 77% of total revenue increased $1.5 million or 5% quarter over quarter, excluding the effects of the non-recurring COVID-19 related projects revenue. Professional IT contract services revenue grew 15% quarter over quarter. IT contract services represents 60% of all professional contract revenue and 49% of total revenue and is our highest priority growth specialty. Direct hire revenue for fiscal 2023 first quarter was $5.7 million, down $500,000 or 8% compared with the fiscal 2022 first quarter direct hire revenue of $6.2 million. Considering its inherent sensitivity to macroeconomic conditions, we are pleased with this level of direct higher production and remain cautiously optimistic about the overall direct higher revenue potential for fiscal 2023. Direct higher revenue for Q1 2023 annualized still exceeds fiscal 2019, 2020, and 2021 results. The increases in our quarter-over-quarter professional contract staffing services revenue and total revenues absent fiscal 2022's non-recurring COVID-19 projects and in our professional IT contract staffing services sector in particular are the result of increasing demand and our strategic and tactical initiatives to meet this demand in the new post-COVID-19 U.S. economy and workforce. Two recent indicators, the outstanding December jobs report, and in contrast, recent significant layoffs of IT professionals by larger employers also are positive indicators for the remainder of fiscal 2023. Recent lower unemployment trends suggest increasing demand for our services, while recent IT corporate downsizing actions mean more IT candidates available to fill demand. Industrial staffing services revenues were $3.6 million and represented 9% of total revenue for fiscal 2023's first quarter into December 31, 2022. We continue to experience growth challenges in our industrial markets associated with economic and lingering post-COVID-19 conditions. Recent inflation also has led to significant increases in hourly wages in our industrial business, while at the same time, certain state and local COVID-19 and unemployment relief programs remain active in Ohio. We are finding that the combination of higher wages and benefits tends to cause many of the company's temporary laborers to seek to moderate or reduce their hours in order to balance income streams and preserve their welfare and other governmental benefits and subsidies. This in turn has the effect of increasing competition among the staffing firms in Ohio to fill temporary labor orders. We are actively introducing new sales and recruiting programs and price increases to restore growth and enhance profitability in our industrial business. Gross profit for fiscal 2023's first quarter was $14.4 million, down $1.2 million. or 8%, compared with fiscal 2022's first quarter gross profit of $15.6 million. Our overall gross margins were 35% and 36.4% for fiscal 2023 and 2022's first quarters, respectively. The decrease in gross profit and gross margin is mainly attributable to the lower direct hire business, which has 100% gross margin. and increases in contractor pay associated with the recent rise in inflation resulting in some spread compression in our professional services businesses. The company has recently stepped up counterinflationary increases in bill rates and spreads in order to increase gross margin. Despite slightly lower quarter-over-quarter gross margin trend, it remains relatively high as compared with those of our competitors. Selling general and administrative expenses, SG&A, for fiscal 2023's first quarter ended December 31, 2022, increased $400,000, or 4%, compared with fiscal 2022's first quarter. SG&A expenses were 31% of revenues for fiscal 2023's first quarter, compared with 29% for the first quarter of fiscal 2022. Inflationary increases in costs, including some strategic investments in sales and recruiting and management resources to take advantage of future growth opportunities accounted for the significant portion of the quarter-over-quarter increase. We expect these strategic investments to begin contributing to top-line growth this fiscal year. In addition, we expect the implementation of the bill rate increases and spread I spoke of and other targeted cost reductions to help improve our expense ratio and operating margin. We achieved net income for fiscal 2023's fiscal first quarter of $700,000 or one cent per diluted share as compared with net income of $16.7 million or 14% per diluted share for fiscal 2022's first quarter. Adjusted net income, which is a non-GAAP financial measure, for the fiscal 2023 first quarter was $1.1 million, or one cent per diluted share, down $1.6 million, or 59 cents at 59%, as compared with $2.7 million, or two cents per diluted share, for fiscal 2022's first quarter. The fiscal 2022 first quarter net income included gains on the forgiveness of former PPP loans of $16.8 million, and a non-cash goodwill impairment charge of $2.15 million. Adjusted EBITDA, which is a non-GAAP financial measure for fiscal 2023's first quarter ended December 31, 2022, was $2 million, down $1.9 million, or 49%, compared with $3.9 million for fiscal 2022's first quarter. The overall declines in our net income, non-gap adjusted net income, and non-gap adjusted EBITDA quarter over quarter are mainly due to the increases in compensation and certain other operating expenses since fiscal 2022's first quarter. As I indicated a moment ago, we expect strategic investments in personnel and price increases to begin contributing to top-line growth and in combination with targeted cost reductions, begin to have positive effects on our margins and profitability during the remainder of fiscal 2023. Our current working capital ratio at December 31, 2022 was 3.6 to 1, up 90 basis points from 2.7 to 1 in September 30, 2022. We reported a small negative cash flow from operating activities of $300,000 for the 2023 fiscal first quarter into December 31, 2022, due to extraordinary payments. Operating cash flow for the 2023 fiscal first quarter was reduced by payment of the second and final installment of deferred FICA taxes of $1.8 million that were deferred under the CARES Act and the $1.1 million in aggregate annual cash bonuses we commented on last quarter. Excluding the effects of these non-recurring deferred FICA payments and the aggregate cash bonus payments, non-GAAP adjusted free cash flow would have been $2.5 million. Our liquidity position is strong. We have no outstanding debt. Our net book value per share was $0.89 at December 31, 2022. and our net tangible book value was 26 cents per share. To conclude, we remain positive and optimistic in our outlook for the remainder of fiscal 2023 with appropriate considerations regarding lingering macroeconomic uncertainties as they are. Before I turn it back over to Derek, please note that reconciliations of G Group's non-GAAP financial measures discussed today with their GAAP counterparts can be found in supplemental schedules included in our earnings press release. Now I'll turn it back over to Derek.

Thank you, Kim. The fiscal 2023 first quarter marked our sixth consecutive quarter of strong operating performance. Having consistently achieved solid margins and free cash flow for the last six quarters, we continue to build a positive track record, as well as strong momentum for the future. At December 31, 2022, the company had over $18.5 million in cash and another $13 million available under its bank ABL credit facility. GE Group's prospects today for future profitable growth continue to expand and improve, and despite macroeconomic challenges or unforeseen events, We believe we can continue to produce solid results in this fiscal year and beyond. Before we pause to take your questions, I want to again say a special 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 have shared with you today. Now, Kim and I would be happy to answer your questions. Please ask just 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.