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.