GEE Group Inc.

Good morning and welcome to the GEE Group fiscal 2023 third quarter ended June 30th, 2023 earnings and update webcast conference call. I'm Derek Dewan, the chairman and chief executive officer of GEE Group, and we will be hosting today's call. 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 is our pleasure to share with you GEE Group's results for the 2023 fiscal third quarter ended June 30th, 2023, 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 Statements, Safe Harbor. And in Monday's earnings press release and in our most recent 10Q10K and other SEC filings, under the captions cautionary statement regarding forward-looking statements and forward-looking statements safe harbor. We assume no obligation to update statements made on today's call. During the presentation, we'll also talk about some non-GAAP financial measures. Reconciliations and explanations of the non-GAAP financial measures we will address today are included in the earnings press release. Our presentation of financial amounts and related items, including growth rates, 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 on our website, www.gegroup.com. We once again achieved very good results in the fiscal 2023 third quarter, beginning with the consolidated revenues of 38.2 million. Our consolidated gross profit and gross margin were 13.7 million and 35.8% respectively. Our consolidated non-GAAP adjusted EBITDA for the fiscal 2023 third quarter was 2.1 million. We achieved consolidated net income of $7.9 million, or $0.07 per diluted share, for our fiscal 2023 third quarter. As Kim will explain further, the prior fiscal year's third quarter and year-to-date results were well above normal due to record high demand for direct hire placement services, which is why we did not beat last year's numbers. Fiscal 2023's performance so far still compares favorably taken into account the operating environment, and particularly in terms of the significant growth we achieved and our combined professional IT contract businesses and other brands. Before I turn it over to Kim, I'm going to pause the quarter. The June 2023 quarter was our eighth consecutive quarter of profitability and free cash flow generation since we completed our restructuring and deleveraging initiatives. in June of 2021. Our operating performance and financial results have been on par with and better in some respects than our larger industry peers, led by significant growth in our IT brands and positions us very well for future growth and future increasing the shareholder value. Our performance through the June 2023 quarter also allowed us to recognize a deferred tax benefit of 6.8 million. This event alone added approximately six cents to the quarter's earnings per share. Kim will cover this very positive development in a few moments. We implemented our 20 million in late April 2023, which now comprises a key component of our capital allocation plans. As of June 30th, 2023, we had repurchased 870,000 of our common shares, and to date, we have purchased nearly 1.5 million JOB shares. At current prices, we intend to continue share repurchases and also are working on enhancements to the repurchase program. I want to assure everyone that we fully recognize our stock is presently undervalued and has substantial room to grow. As a matter of fact, most publicly traded firms are trading well below market indices and the 52 week highs due to environmental concerns. And therefore we believe our entry and our tire industry group, including J O B a tremendous upside potential measuring forward from the time we announced the funding of our follow on offering on April 19th, 2021. GEE Group stock has outperformed most of its public staffing industry peers, including several of the largest players. Finally, before I turn it over, I want to once again thank our wonderful, dedicated people that work extremely hard every day to ensure that our clients get the very best service. They are the key factor in the outstanding performance GEE Group achieved in fiscal, 2022 and so far in fiscal 2023, and will continue to be the most important driver of our company's future success. At this time, I'll turn the call over to our CFO, Kim Thorpe, who will further elaborate on our fiscal 2023 third quarter results. Kim.

Thank you, Derek, and good morning.

Our consolidated revenues for the three and nine months into June 30, 2023 were $38.2 million and $118.2 million, which were lower overall in comparison with comparable fiscal 2022 periods. The lower fiscal 2023 revenues were mainly attributable to 2022's record high performance and direct higher placement revenues. Despite this, and the headwinds we've faced so far in fiscal 2023, there are some notable positive results, including substantive growth in our professional contract services businesses led by our IT brands. Our financial performance so far in fiscal 2023 also is on par and better in several respects than that of other publicly traded staffing companies, and we remain reasonably optimistic about performance for the remainder of the fiscal year. Professional and industrial contract staffing services for fiscal 2023's third quarter were $33 million, which is near level with the comparable fiscal 2022's third quarter contract staffing revenue services. Professional contract staffing or professional contract services revenue our largest contract services segment represents 90% of all of our contract services revenue and 78% of our consolidated revenue and increased $800,000 or 3% quarter over quarter. The bright spots in these comparisons were that our professional finance accounting in office and IT contract services revenues both grew in the quarter with IT revenues achieving 9% growth year to date. IT contract services has now grown to 59% of all of our professional services contract revenue, and IT direct hire and contract services revenue combined represented 49% of consolidated revenue, nearly 50%. Direct hire placement revenue for the fiscal 2023 third quarter was $5.2 million compared with the fiscal 2022 third quarter of $8 million. As Derek and I mentioned earlier, fiscal 2022 was a record high year for direct hire placement services. And in fact, our June 2022 quarter set the record as our highest June quarter ever for direct hire placement services. Our direct hire placement revenue for the nine-month period ended June 30, 2023 was $15.8 million. Industrial staffing services revenues were $3.2 million and represented 8% of total revenue for fiscal 2023's third quarter into June 30, 2023. We continue to experience growth challenges in our light industrial markets, which we attribute in part to the lingering presence of some COVID-19 holdover relief programs that are available to workers in Ohio. We believe and observe that these programs tend to cause our light industrial temp workers to moderate or reduce their work hours in order to balance income streams in favor of preserving government-subsidized benefits, which they may lose if their earned income is too high. Recent inflation also has led us to increase hourly wages and benefits for contingent workers in our light industrial businesses in Ohio. These conditions combine to increase competition among staffing firms in the Ohio markets for laborers to fill temporary staffing job orders. We are actively introducing new sales and recruiting programs to help attract and retain candidates and restore growth in our industrial businesses. We also have implemented price increases in Ohio which have been successful to an extent in helping mitigate the impact of inflation and labor conditions there. Gross profit for fiscal 2023 third quarter was $13.7 million, down $2.8 million, or 17%, compared with fiscal 2022 third quarter gross profit of $16.5 million. Our overall gross margins were 35.8% and 40.1%, for the fiscal 2023 and 2022 third quarters respectively. The declines in gross profit and gross margin again are mainly attributable to lower direct higher placement business, which has 100% gross margin. On the contract side, increases in contractor pay associated with recent inflation also caused some spread compression within our professional services businesses. The company has recently stepped up counterinflationary increases in markups, bill rates, and spreads in order to address recent margin depression. Despite lower quarter-over-quarter gross profit and gross margins, our current margins remain relatively high and are very competitive as compared to the company's peer group. Selling general and administrative expenses, SG&A, for the fiscal 2023 third quarter into June 30, 2023 decreased by $1.1 million or 9% compared with fiscal 2022's third quarter. SG&A expenses were 30.8% of revenues for fiscal 2023's third quarter compared with 31.3% for the third quarter of fiscal 2022. In late February and March of 2023, The company implemented certain cost reductions with estimated annual savings of approximately $4 million. The company monitors operating costs, including the impacts of inflation, with a view towards identifying and taking advantage of potential cost reductions on a routine basis. We are now beginning to see the benefits of our counterinflationary measures and other targeted cost reductions to help improve our expense ratios and margins. We achieved net income for fiscal 2023's third quarter of $7.9 million or $0.07 per diluted share as compared with net income of $2.6 million or $0.02 per diluted share for fiscal 2022's third quarter. The quarter-over-quarter increase is mainly attributable to the deferred tax benefit of $6.8 million recognized in the quarter associated with the reversal of what was 100% allowance that we carried as an offset to our deferred tax assets. To put the significance of this further into perspective, that is beyond the amount, we have been required to carry this 100% valuation allowance since the acquisition of General Employment Enterprises by Scribe Solutions in 2014 that formed our, your company, GEE Group Inc. as it stands today. The testing criteria that must be met to accomplish this release are highly technical and highly scrutinized by management and our independent auditors. However, in the simplest terms, and as Derek touched upon in his opening, it is also significant in that the company was required to demonstrate both its historical profitability and outlook that the allowance is no longer required. Adjusted net income, which is a non-GAAP financial measure for fiscal 2023's third quarter, was $8.1 million, or 7 cents per diluted share, as compared with $3.1 million, or 3 cents per diluted share, for the fiscal 2022 third quarter. Adjusted EBITDA, which is a non-GAAP financial measure, for the fiscal 2023 third quarter and year-to-date into June 30, 2023 was $2.1 million and $5.8 million as compared with $4.2 million and $11.5 million respectively for the comparable fiscal 2022 periods. Several factors we've covered, including notably the decrease in fiscal 2023 direct higher revenues so far from fiscal 2022's record highs, as well as some inflationary pressures present this year, particularly on wages account for the declines. We also expect the cost reductions we implemented in February and March of this year to continue to help mitigate inflationary increases on costs and expenses going forward. And of course, we will take other measures necessary to improve our margins and profitability where available. Our current and working capital ratio at June 30, 2023 was 4.1 to 1, up 139 basis points from 2.7 to 1 at September 30, 2022. Adjusted free cash flow, which is a non-GAAP financial measure, for the nine months ended June 30, 2023, was $4.3 million, which excludes the effects of the second and final installment of deferred FICA taxes of $1.8 million that were deferred under the CARES Act, which were paid in December of 2022. Our liquidity position remains strong, and we have no outstanding debt. Our net book value per share was 96 cents at June 30, 2023, and our tangible book value per share was 35 cents, both up significantly since September 2022. And the company, as Derek mentioned, has repurchased nearly 1.5 million shares of common stock in open market purchases at an average price of 52 cents a share since the program was authorized on April 27, 2023. To conclude, we remain positive in our outlook for fiscal 2023 with appropriate consideration of the uncertainties and unknowns that exist in our operating environment now. 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 the supplemental schedules, including in our earnings release. Now I'll turn the call back over to Derek.

Thank you, Kim. The fiscal 2023 third quarter marked our eighth consecutive quarter of strong operating performance since deleveraging the company. Having consistently achieved higher margins and free cash flow for the last eight quarters, we continue to build a positive track record as well as a positive momentum for the future. At June 30th, 2023, the company had no debt and over $20.7 million in cash with $12.4 million in availability under our bank ABL credit facility. GE Group's prospects today for future profitable growth continue to expand and improve. Despite macroeconomic headwinds and unforeseen events, I'll take it over from here.

I think we lost you. What Derek was saying is despite macroeconomic headlines and unforeseen events, we will continue to work hard for the benefit of our shareholders and expect to deliver solid results for fiscal 2023 and beyond and significantly increase shareholder value. Before we pause to take your questions, I want to again say for Derek and I, a special thanks to our wonderful people for their professionalism, hard work, and dedication. As we said, without them, we could not have accomplished all the good things we've shared with you today. Now, Derek and I would be happy to answer your questions. Please just ask one question and rejoin the queue with follow-ups as needed. If there's time, we'll come back to you for additional questions. And I'm going to give Derek just a minute to see if he can come back on the line before I begin answering questions.

Okay.

In the interest of time, we have one question in the queue, which is, can you explain the structure of the business or the professional contract services and direct hire segments run separately or do they share staffing and or customers? Thank you. That's a good question. The businesses, the products or the services, if you will, are very different. All of our brands, with a couple of exceptions, light industrial being one, and scribe or medical, have both direct hire services and professional contract businesses. The customers can overlap, but they're not necessarily the same customers. I'm not sure the proportion with which they overlap, but I would guess that in most cases, they are separate. But that's a guess. But thank you for the question. I have another question. In relation to 2019 and 2022, what are you guys expecting for the Q4 23 and four-year-old 2024? I'm going to presume that the question is, how do we think we're ultimately coming out on a trend from pre-COVID to post-COVID? Um, 2022 again was a very, uh, uh, record year. Uh, I think there was, uh, some, some significant catch up in 2022. As we continued in 2021 to kind of slowly come out of the pandemic, there were, um, there were variants of COVID and things like that. And, and, and there were also, um, new paradigms in the workplace that were being assimilated. And so in 2022, um, I believe there was some catch up and there was a lot more direct hire business in that year. Um, and I, I wish Derek were here to share the points, but in any event, I'm here.

I'm here. I'm here. I lost the connection for a second, but okay.

Derek, I'm looking at it. I'm looking at a question and I was just answering a question in relation to 2019 and 2022. what are your guys expecting for Q4 23 and 2024? And I was given some color to that. You know, I think it, a lot of it will depend on how we weather through the uncertainties that are still out there. I mean, inflation, although it is because it, There are different points of view as to how much under control it's becoming and when. And there are different points of view about a recession or potential recession. So all those things will have a bearing on it. But I continue to think that we'll perform very well relative to our industry peers. Derek, you want to add to that?

Yeah, I'll add something. The outlook for the macroeconomic environment is choppy. in 2023. We're seeing some ups and downs. Clearly, permanent hires reached a peak in 2022, but we see strength in 2023 relative to the non-2022 years, as you suggested. The outlook for the summer of 2024 is anticipated to be strong versus any recessionary trends that we're in now I would say that it's a bit choppy on permanent hires now. Our contract business is doing quite well and holding up. Our pricing power is pretty good, and our profitability will continue to be good. Our cash flow is great, and I think that you should expect good things going forward, as we do. The next question, Kim, was pretty much covering pricing, and I will – You want to talk about that because you were instrumental.

Yeah, I'm glad to. We recognized actually about a year ago that, well, more than a year ago, that inflation was occurring. And we began to see increases in wages, not only in our core staff that operate the business, but also in our temporary staff. In the case of our temporary staff, there is some built-in hedging in the way we price to begin with in the structure, because we start with the rate per hour for our temporary contractors or workers, and then we add a spread to that. Be that as it may, we began in earnest over a year ago directing our businesses to go to our clients and see price increases. And fast forwarding from there, I would tell you over the last 12 months or so, we've achieved low to high, in some case, single-digit rate increases And with respect to our industrial business, in some cases, we've gotten even higher double-digit rate increases. And going forward, you probably will see more robust attention to rates while we watch inflation and while we remain mindful of it.

OK, thank you. The next question is a question about the scope review for strategic alternatives that the board of directors decided to take a look at. The concept there is to get an investment bank or other consultant just to take a look at all the different alternatives in corporate structure, acquisitions, buybacks, and so forth to see if we're maximizing utilization of all the tools we have to enhance shareholder value. So it's a good, healthy check. We'll call it like a physical, a checkup. And we expect to get some good benefit out of that. The next item is, can you expand on the strategic review? Again, we'll let you know more after that happens. Shares trading over $1.50 before the COVID with over $108 million in debt. that you've paid off over two years. Can you provide a breakdown of the professional contract services, revenue, ITF and other how that evolved over the past two years? Kim, why don't you address the both the capital structure and the different verticals and how they look right now?

All right, thanks. The reason the shares are trading where they are now, as opposed to about 50, is that before COVID, we had 18 million shares outstanding. And the follow-on offering that we completed to raise the funds to pay off all the, or the remainder of the 108 million in debt that you refer to, we sold 95, almost 96 million shares. So that accounts for the dilution between the buck 50 and the 50 some odd cents and trading range that it's been in recently in addition to the other market forces that are out there at work on the entire staffing industry. As far as a breakdown of professional contract services revenue, IT, F&A, and other, as I mentioned in the script, IT is 59% of professional. F&A is probably the second largest. And those two together account for about 85% to 90%. The other portions being medical, engineering, and some other professional specialties, smaller specialties. How have these evolved over the past two to three years? Very simply, IT is overtaking its spot and accelerating and becoming a bigger portion of all our professional services revenue. And it's mostly because of its growth. In fact, during the COVID pandemic, one of our IT brands actually grew, which was a total surprise. But it turned out that because of all the, not layoffs, if you will, but all the office locations closing during the pandemic and sending people to work from home, It actually generated more business for our IT, so at least one of our IT brands. The other ones tended to lose some revenues during the pandemic. But IT is a coveted vertical in professional staffing. It tends to fetch the highest multiples in valuation terms, and it tends to be not as sensitive to changes in economic conditions because IT is becoming so much, just in a nutshell, has become so much of a factor in our total infrastructure. So anyway, Derek, do you want to add anything to that?

No, I think you did great. Thank you. The next question is relating to your client industry verticals. And we're fortunate that we have diversity in our clientele. Four of the big segments of our clientele's industry group would fit into telecom, tech, manufacturing, and financial services. And within those entities, we staff everything from finance professionals, controllers, account other accountants analysts and so forth we have a banking specialty group doing permanent hires we also have a big presence in the tech departments for placing IT workers across all the verticals so we're very diverse and concentrated heavily too much on one particular industry segment. And that helps a lot when you have ups and downs within a segment. So we feel fortunate in that regard. And our client penetration rate's pretty good. And we continue to get more business from existing clients as well as new clients. So we're very fortunate in that regard. Okay, the next question. Can you elaborate on the agreement with Red Oak? Red Oak is our largest shareholder and representing our largest shareholders, David Sandberg, who joined our board. We put that information out publicly. Mr. Sandberg is very experienced and will add value to the organization. And being our largest shareholder, it's great representation for the shareholder base. The agreement is public. So feel free to read that. There was an 8K filed with it. Next question, would a sale or private going private transaction take place? That's a great question. So the answer to that is there's always people that propose alternative structures, M&A, and I've been involved in that. over over a period of time we have acquired five companies and we can continue that path our capital allocation strategy contemplates the ability to buy back shares and to do strategic acquisitions if they're priced right and accretive to our earnings so we're very fortunate there too and I think our strategic review will prove out the best alternatives for cap structure and use of our cash, and so forth, and other alternatives. So I can tell you that we have high expectations for our company in terms of its performance, and we also have high expectations for our share price to move forward in a good upward momentum. And let's see what the next question is. Is the option of selling GE Group And a structured process on the table. You know, as a fiduciary for shareholders, being the chief executive, you have to always look at what's in the best interest of shareholders. So at this point, I can tell you there's no sale process going on because we would be public to the extent that we could be with that. But options are always available across the board, as they should be. in a public environment. I ran a company for 17 years and had several offers, the MPS group, which started out as Accustaff. And at one point, the offer was too good to be true. And it materialized and it was in the best interest of shareholders. And then we executed that offer and it proved to be the absolute right decision for both the acquirer, the shareholders, and for all the employees that continued on with the acquirers. So, you know, events happen. Our goal is to maximize the profitability and value of our company as a standalone. And if someone wants to buy our company, then they can put an offer on the table as, as they should. And it's a public company. If it's a good deal, it gets presented to the shareholders. And I mean, that's the typical format that a CEO must take running a public company. So, We feel great about our position in the industry and where we go. And we will always look at strategic alternatives as we should that are in the best interest of our employees and shareholders. So we feel real good about our prospects across the board as a standalone. And also when we do our strategic alternative analysis, we'll see what that develops into in terms of capital allocation, some other things. that we could do. Next question is the, let's see. Okay, this is a long one. Can you comment on the 50% requirement of the outstanding stock that Red Oak must own? Okay. If not, Mr. Waterfield could be pushed out of the board. All right. So Mr. Waterfield and Mr. Sandberg are now on the board and will be active board members. and we're happy to have them on board. I can say that that provision that was read doesn't mean that it means that they need Mr. Sandberg and Rutto has to keep a certain equity interest in the company to maintain his board seat through the agreement. It doesn't mean that he has to leave the board if the board would like him to stay. So That's just a provision that we want our board members, particularly those that come on with a big shareholding interest, to stay continually involved to the extent that it makes sense for them to. But we do have a provision in the agreement that says if their ownership falls below that level, then the board could say that you have to leave the board. I would venture to say that the value that these two board members bring to the table is a lot of experience and financial knowledge and investment knowledge. And we're going to utilize the talent as we do with all of our board members. So we look forward to engaging with our new board members. Can you give us an update on the acquisition pipeline and industry consolidation? The acquisition pipeline is good. We've been very picky because 2022 was a banner year for for the industry, particularly with permanent placement or direct hire. So we don't want an aberration in terms of results to be utilized in negotiating a purchase price for an acquisition. What we like to see is a trend line over time showing what the average growth rates are and what the profitability looks like as well and so forth. There are opportunities. We look at them every day. We're picky, as we should be, and we're likely to look at both being an acquirer and also merging with peer groups if it makes sense in the industry and other strategic alternatives. But it's still robust. There's still a lot of activity. It's not what it was before. a couple years ago, but it will kick up again once people get certainty on the economic environment. Economic uncertainty puts a lid on activity, and that lid should be lifted as people get more certain about the economic environment and political environment as well. How many shares could you buy back per day now? So that's a great question. I'm glad they asked pursuant to your 8K. So we just put out an announcement this morning, uh, on a 10 B five one plan. And briefly that allows us to buy back even when there's material non-public information. And we explained that in our release and, and also the eight K that was filed. So it will allow us to continue to buy, even at times where there might be a blackout, um, or other prohibition in the normal course. The 10B51 works in conjunction with 10B18. 10B18 sets volume limits on how much we can buy every day and also price points. We can't make the price go up, just arbitrarily set it up. We can be in the market like any other shareholder and participate up to the volume limit, which is, you know, four weeks, the average trading volume for the prior four weeks. 25% of that, I believe. That's correct. You can look at 10B18 for reference on that. In any event, we are buying the maximum at this time and we'll continue to do so as our free cash flow continues to be very good and we have a lot of cash. We put the 10B11 10B51 in so that we wouldn't be limited with blackout periods pretty much. Or if we have material non-public information, it wouldn't preclude us from buying back shares. One of the things that the prior question was, your stock price was higher, you did an equity offering, you paid off debt. The buyback makes a whole lot of sense in mitigating the dilution from issuing a lot of the shares. Kim, you want to elaborate on that?

Yeah, I'm sorry, repeat the question again.

Just on mitigating the dilution with the buyback. Yes. We issued a lot of shares. Yeah, we did.

We issued almost 96 million shares in April of 2021. We bought back so far a million and a half shares. We have a long way to go. We are allowed... in certain cases, to acquire blocks. But there are special rules around that as well. But over time, we've now positioned the company so that we're generating cash, we're able to maintain significant cash, and continue to support the buyback program. And as time goes on, Again, and I'm going to level set the price, let's say, of where we are now. If we were to stay there, which we don't expect to do and don't want to do, but if we did, eventually we will buy back enough stock so that the price per share has to go up because of the accretive nature of stock repurchases. So we actually are... with the approval of the $20 million program, and of course the board at the end of December this year can reinstitute it or re-up it or whatever, which we would do under these circumstances almost certainly, creates a process where in addition to earnings, we will increase shareholder value by reducing the number of outstanding shares.

Thanks, Kim. Another question that we had are tuck-in acquisitions basically on the horizon. Tuck-in acquisitions make a lot of sense. They're easy to integrate and can add immediate value to our company in terms of revenue, EBITDA, and also brings talent to the organization that we can use to help serve existing clients as well as the clients that come in with the acquisition. So, yes, tuck-in acquisitions make sense for us. We anticipate that we will do those, and they're not in lieu of the capability of buying back stock. They're an addition, too. Fortunately, we have enough cash and cash flow to do both. The next question that we have is – your net operating loss carry forwards. Kim, do you want to comment on that? What are the net operating?

Yeah, let me come back to get you the actual number. It's disclosed in the last 10K, and I can guesstimate it from there, but I think it's about 18 million. Okay. But I don't have the figure at hand, but I'll find it and report it in just a second.

Okay, great. Another question is, Are your shares trading at four times the EBITDA run rate right now, net of the cash? Yeah, I think that's – that a four times run rate represents the undervalue that we're at. Consider that normalized EBITDA, we've reached some high numbers in the past, in the $12 million to $14 million range. So I think you're right on track with your calculation of where we're at today. And what it shows is there's tremendous upside. And we anticipate that upside occurring as things get better economically and also with actions that we're taking internally on pricing, cost reduction, cost control, new business development, and so forth. and also bringing in strategic acquisitions. Buybacks don't increase EBITDA, but they do increase earnings per share, and they tighten the share count up as well. So the combination of all of the different programs will add value to us going forward and increase your – how many shares could you buy back per day? We got that.

Yeah, Derek, on the NOLs, we had $17.7 million on a federal tax basis at the end of last year. So if you just kind of mark that off against, and this is very rough, against this year's year-to-date pre-tax income, it leaves you around $12 or $13 million or something. But again, there are other adjustments to that, so I don't have an exact figure, but they're still significant.

Hello? Derek, are you there?

Okay, I'm going to keep going. There's a comment, congratulations on net income. It seems there's a $6.7 million gain on taxes. Please elaborate. We talked about this in the call and Long story short, we've been required since inception to carry 100% allowance against a deferred tax asset. The deferred tax asset exists in part because of our NOLs and some other timing differences, including notably the fact that we amortize intangibles and goodwill for tax purposes in some cases that we don't for book. Having said all that, The key to being able to recognize your deferred tax assets is being able to demonstrate more positive than negative evidence to overcome the more likely than not test. The biggest key aspect of that is being able to demonstrate consistent profitability and the standard rule of thumb is 12 consecutive quarters of consistent profitability, which we've now achieved through June of 2023. That, in turn, allowed us to reverse a lion's share of most of the asset. The remainder of the asset, by the way, a small portion, about 10% of this, will reverse in the fourth quarter because it becomes part of the overall calculation. How much cash are you guys targeting to use for buybacks on a quarterly basis, given the stock remains depressed? Our cash position, as Derek mentioned, and I think I mentioned, we have 20 million or more, almost 21 million in cash. We're generating cash. And at the rate of open market purchases, we're not in any danger of running out of cash. By virtue of stock buybacks, we will keep buying the stock aggressively. And now with the 10B51 plan, We'll be able to do more in that regard. So we don't have a budget per se, but as long as we have the amount of excess cash we do, you can expect it will be fairly aggressive. And the stock remains undervalued. You can be certain we'll be fairly aggressive in our buybacks. Um, a percentage of sales, uh, once the cost cuts reply, what is your expected SG and expense? Our target is to get to 30 or even below 30. Um, that's, that's also impacted by again, um, some uncertainty that's still out there in the economy. What we refer to finally in the call is the headwinds, so to speak, which really are, uh, inflation. And more than that, the impact that inflation and the threat of recession or other negative economic conditions continue to cause our clients to maybe pump the brakes a little bit on utilizing our services. But once the economy gets back to normal, I'll call it whatever that is these days, you should expect it will perform very well. And given the things that we're doing and putting in place now, we're targeting again for a 30% or lower SG&A ratio to revenue. That's a goal and a target. G group has changed stock buyback program. Please elaborate. And also what is going on with the tender offer to entice some shares We, at this stage, we just reformed our board. We brought on three new members. We have a reinvigoration. We have a stock repurchase program. And one of the things that we mentioned in the Q&A here that we'll be doing and that you all have noticed that we publicly filed is we will be looking at strategic alternatives. And I'm quite certain that a tender offer will be one of the things that are on the list of things for us to look at, the board that is. Are there any other large activist shareholders eyeing the company since the price is severely undervalued relative to book? You know, as of now, none that we know of. We know that there are some shareholders out there that have been potentially involved in other activist activities. But as of today, there are none. Could you elaborate? But let me back up on that one. There could always be that. We have a lot of cash. We're performing well. There's new interest now. We're excited to have Mr. Sandberg and Waterfield join the boards. We have another new board member, Gerald James, who we haven't given due shout out to. Gerald joined our board, also effective with this last round of reorganization. She is a tremendous executive. She's an attorney. She at one time was general counsel for ADECO. And ADECA was obviously the successor company to MODIS, but her time at ADECA post was after Derrickson and our board members that came from MODIS. She's very pleasant, and I think she's going to add a lot of value to the board as well. Could you elaborate on the task of the director's seat, which is related to M&A? What impact does it have on your M&A strategy? We have an M&A committee. Mr. Sandberg and Mr. Waterfield have joined that committee, as indicated in the documents. And we expect to have a very robust discussion around M&A. But as of now, there are no plans or an agenda, a detailed agenda has not been set for that committee. Can you give an update on the candidate availability, particularly by job level or skills? Great question on the operations of the company. I think the candidate availability has improved over the last 12 months. There is still, particularly as we've mentioned in the light industrial sector and to some extent in the finance, accounting, and office sector, there's still a little bit of catching up we think to do. to be done there. And, you know, one of the things we look at, and there's actually a slide in the corporate presentation on this, on our Outlook page, is we, I track, we track the, believe it or not, there's a chart prepared by the Federal Reserve Bank in St. Louis on behalf of the Fed that tracks all commercial deposits in banks across the United States. And then we look at that and the trend lines on that chart, and it still shows that there's an amount of excess money still out in the economy that is obviously at least causing, you know, taking some people out of the labor participation rate, which is also still below where it was before, below the pandemic. You can also see that the labor participation rate is beginning to rise. And we believe that when those two trends merge with one another, that then we'll be back in a position like we were before the pandemic. But it's a great question. Candidate availability is always paramount to us, but our candidate availability is reasonable right now and in line with our peers. Where are your taxes going forward? Assuming your quarterly pre-tax income is a million dollars, what would be your cash taxes. We still had, as of the end of last fiscal year, about $17.7 million of NOLs to burn off. So $6 million and change of that can be carried forward indefinitely. So we expect that to reduce our cash federal taxes. We also have about 14 million of NOLs for state tax purposes. So as of now, most of our cash taxes, in fact, all of our cash taxes are basically paid to state income tax jurisdictions and state and local. And so our overall quote paid tax rate is probably around four and a half to five percent. And again, that's just a good average for state income tax rates. What is the Q4 forecast and what is your plan for the company? One billion in sales or tender offer at sale? Our Q4 forecast, as we said on the call, we're reasonably optimistic that it'll be Good. Where it's going to come in relative to last Q4 or where it's going to come in relative to Q3, we're not sure yet, but we think it will be reasonably good. We've taken out a lot of costs as we talked about, and so far so good. One billion in sales, that's a long-term goal for the company. Obviously, that would be achieved through a combination of M&A and organic growth. All these questions, again, will be taken up by the board as it looks at strategic alternatives. Post quarter, how much has cash changed given additional buybacks? Good question. Just under a million and a half shares less the $870,000 that we bought from since June 30, which were disclosed in the queue and in the earnings release. The difference is $700,000 or so. And you can assume the market rate of acquiring those, so probably $350,000 or $400,000 would be a good estimate for that. Sorry, I might have missed it. Could you explain what the deferred tax assets are and what's their impact? I've already talked about that. Please take a look at the earnings release of the 10-Q for additional information on that. Can you comment on other assets and liabilities which have at times seen some wide swings? The swings primarily have been in other liabilities. Since 2020, there was $3.6 million of deferred FICA in that number. In addition, in this quarter, now that the allowance has been taken away from the deferred tax asset, we've gone from a net deferred tax liability to a deferred tax asset, and that's been reclassed against other assets. So that also had the impact of causing the volatility in those other assets and liabilities. I noticed one-year price targets stand at $2. Since I've been a shareholder, I think the team is doing an amazing job, which do people know that, but do people know you find people jobs in the USA only and danger outside the USA? I'm not sure I completely, understand the question there. It's a little bit muddled. There is another, Red Oaks prior demand was to split the CEO and chairman role after the cooperation agreement. Does this mean Derek is still the chairman of the board?

Derek is still the chairman of the board. Thank you.

Derek, are you there, man?

Yeah, I'm here. I've been here. You're doing a great job. OK, all right. Thank you very much. If you read the cooperation agreement closely, one of the things in the governance arena for public companies is to make sure you have board members that are independent and that you don't have too much concentration of a director in particular, and that there's objectivity on the board, uh, from a governance standpoint. So one of the recommendations that, uh, Red Oak has made was to separate previously to separate the CEO and chairman's position. Um, an alternative to that, uh, was to appoint a lead independent director. And if you see the agreement, uh, The cooperation agreement, a lead independent director has been appointed. It's also in the press release, and it's Tom Vetrano, who's an outside director and has been on the board since 2020. And we felt that was a good governance move, and it also satisfied Reddick as well. And again, you know, suggestions made by any shareholder will be looked at. And if appropriate, action will be taken. We felt good about that decision. And we also feel good about the cooperation agreement that was entered into. And we're back to business, all working together toward a common goal of getting our share price up. And I like the question about a $2 price target. You know, that's pretty good. I set my sights, you know, even higher personally. but we have to take it a step at a time. So can this company be valued appropriately at a $2 price target? Of course. We have to deliver certain results. We need to have some good macroeconomic conditions and some momentum as well, all of which will happen. I've been through several cycles myself, both with this company and a predecessor company. I was able to deliver very, very good shareholder value. So, I thank you all for the comments and also the observations and advice. One other question, then we'll call it a day, about, let's see, nominal upside since the stock is so, what is the target price, 1.2 or 1.4 or 2? The target price, at least by the analyst community, is $2 at this point. So we have to take each step at a time. It wasn't too long ago that we were over $1 per share and as high as $1.80 pre-equity offering. So all these are stepping stones toward getting to a pretty high number. And rest assured, we won't be satisfied until we get to much higher targeted share prices, increasing our market cap and delivering value for all the shareholders. So we're very optimistic. We appreciate your investment. We appreciate you being part of our team as shareholders or interested parties. We look forward to good things going forward, and I thank you. And that will conclude the call for today.