GEE Group Inc.

Hello and welcome to the GEE Group fiscal 2024 full year and fourth quarter ended September 30th, 2024 earnings and update webcast conference call. I'm Derek Dewan, Chairman and Chief Executive Officer of GEE Group. I 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 for joining us today. It is our pleasure to share with you GE Group's results for the fiscal year and fourth quarter end at September 30th, 2024, and provide you with our outlook for fiscal year 2025 and the foreseeable future. Some comments Kevin and I will make 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 Thursday's earnings press release in our most recent Form 10Q, Form 10K, 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. Throughout this presentation, we will refer to periods being presented as this quarter or the quarter or this fiscal year or the fiscal year, which refer to the three-month or 12-month periods ended September 30, 2024, respectively. Likewise, When we refer to the prior year quarter or prior year, we are referring to the comparable prior three-month or 12-months period ended September 30, 2023, respectively. During this presentation, we will also 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. Now on to today's prepared remarks. In fiscal 2024, we encountered and continue to face very difficult and challenging conditions in the hiring environment for our staffing services and human resources solutions, stemming from macroeconomic uncertainty, recession fears, interest rate volatility, and inflation, leading to a less than robust hiring environment and slowdown in the labor market, which resulted in fewer job orders and lower revenue. These conditions have produced a near universal cooling effect on businesses' use of contingent labor and the hiring of full-time personnel. As a brief reminder, the demand environment for our services, as well as our industry peers, began to soften in the latter part of calendar 2023, following a robust hiring of both contract labor and permanent employees and the calendar year 2021 and 2022, much of which was attributable to a post-COVID-19 bounce. Since then, many client initiatives such as IT projects, backfilling of open jobs, and corporate expansion activities requiring additional labor in general have been put on hold. Instead, many businesses who we serve have implemented and proceeded with layoffs and hiring freezes. These conditions persisted during the 2024 fiscal year and have continued to negatively impact job orders for both temporary help and direct hire replacements. Thus, our financial results for the 2024 fiscal fourth quarter and full year ended September 30, 2024 have been negatively impacted by these conditions. GE Group's consolidated revenues were $28.3 million for the 2024 fiscal fourth quarter and $116.5 million for the fiscal year ended September 30, 2024. Gross profits and gross margins were $9.5 million and 33.7% respectively for the quarter and $37.6 million and 32.3% respectively for the fiscal year. Consolidated non-GAAP adjusted EBITDA was negative $1 million for the quarter and negative $2.3 million for the fiscal year. We reported a net loss of $2.3 million or $0.02 per diluted share for the quarter and a net loss of $24.1 million or $0.22 negative per diluted share for the fiscal year. In order to improve our financial results, we are taking aggressive actions, both short-term and long-term. As recently announced, we are taking this opportunity to ramp up our M&A activities at the same time we're streamlining our operations. We have now executed on substantially all of the estimated $3 million in annual reduction in SG&A costs that we announced earlier and continue to tightly manage costs. In addition, we are exploring various options to streamline our business and further reduce costs. Additionally, we intend to begin to migrate and integrate further our remaining legacy front office and back office systems onto singular cloud-based platforms starting in 2025. We have the resources to complete this process over a period of 12 to 18 months once commenced and anticipate we will further achieve economies of scale and be positioned to accelerate and integrate future accretive acquisitions more efficiently. In addition to these near-term initiatives, we are closely working with our frontline leaders in the field across all of our verticals to help them continue to aggressively pursue new business as well as opportunities to grow and expand existing client revenues. We are seeing some positive results. When an anticipated recovery does occur in the future, I am very confident that we are positioned to meet the increased demand from existing customers and win new business. We successfully did this following the COVID-19 pandemic and severe downturn in 2020. We generated significant growth in 2021, 2022, and the first part of 2023 prior to the current downturn and were profitable in all three of those years. As a matter of fact, 2022 was one of our best years ever. We can do it again and are laying the foundation to do so. I am also happy to report that we are now well underway formulating and executing on our recently enhanced strategic plans, which include making prudent investments to grow both organically and through mergers and acquisitions. At the same time, rest assured that we will always manage our business prudently, maintaining a solid solid cash position with available attractive financing with regard to m a we have identified several potential strategic acquisition targets and expect to complete accretive transactions early in the calendar year 2025. as you know we paused share repurchases on december 31st 2023 having repurchased just over five percent of our outstanding shares as of the beginning of the program Share repurchases always will be considered as an alternative component of our capital allocation strategy and a bona fide alternative use of excess capital in the future, if and when considered prudent based upon all of the facts and circumstances. Before I turn it over to Kim, I want to reassure everyone that we fully intend to successfully manage through the aforementioned challenges and restore growth and profitability as quickly as possible. GEE Group has a strong balance sheet with substantial liquidity in the form of cash and borrowing capacity. The company is well positioned to grow internally and be acquisitive. We also continue to believe that our stock is undervalued and especially so based upon recent trading at levels very near and even slightly below tangible book value. Also, only a relatively small portion of our float is actually trading at these levels, further evidence that there is good opportunity for upward movement in the share price once we are able to operate again in economic and labor conditions that are more conducive to our business. The management team and our board of directors are working collectively and diligently to deliver strong financial results which will drive an increase in shareholder value. I wish to thank our wonderful, dedicated employees and associates that work extremely hard every day to ensure that our clients get the very best service. They are a key factor in our prior achievements and the most important driver of our company's future success. At this time, I'll turn the call over to our Senior Vice President and Chief Financial Officer, Kim Thorpe, who will further elaborate on our fiscal 2024 annual and fourth quarter results. Kim.

Thank you, Derek, and good morning, everyone, and happy holidays. As Derek reported, consolidated revenue for revenues for the 2024 fiscal year and the fourth quarter were $116.5 million and $28.3 million, down 24% and 17% respectively. from the comparable prior year periods. Contract staffing services revenues for the fiscal year and quarter were $104.3 million and $25 million, down 22% and 19% respectively from the comparable prior year periods. Professional contract services revenue for the fiscal year, which represents 91% of all contract services revenue and 80% of total revenues, decreased $25.3 million or 21% as compared with the prior year. Professional contract services revenue for the quarter also represented 91% of all contract services revenue and 80% of total revenue and decreased $4.9 million or 18% as compared with the prior year quarter. Industrial contract services revenue for the fiscal year which represents 9% of all contract services revenue and 8% of total revenues decreased $3.5 million or 27% as compared with the prior fiscal year. Industrial contract services revenues for the quarter represented 9% of all contract services revenue and 8% of total revenue and decreased $800,000 or 27% as compared with the prior year quarter. Direct higher revenues for the fiscal year were $12.2 million, down 37% as compared with the prior year, and were $3.4 million for the quarter, down 5% as compared with the prior year quarter. As Derek commented, our top-line performance was directly impacted by the difficult economic and labor market conditions facing us and the entire industry. Gross profit for the fiscal year was $37.6 million, down 29% as compared with the prior year. Gross profit for the quarter was $9.5 million, down 18% as compared with the prior year quarter. Our overall gross margins were 32.3% and 34.7% for the fiscal year and comparable prior fiscal year, respectively. Consolidated gross margins were 33.7% and 33.9% for the quarter and comparable prior year quarter, respectively. The decreases in gross profit and gross margins are mainly attributable to the decline in volume and mix of direct higher revenues, which have 100% gross margin relative to total revenue. Lower numbers of job orders and tight labor markets on the contract services side also contributed, resulting in more competitive conditions and downward pressure on bill rates and spreads accordingly. Our professional contract services gross margin was 25.3% for the fiscal year as compared with 26.1% for the prior fiscal year, a decrease of 80 basis points. The gross margin for professional contract services was 25.5% for the quarter compared with 27.2% for the comparable prior year quarter, a decrease of 170 basis points. The decrease in professional contract staffing services gross margins is due in part to increases in contractor pay and other employment costs associated with the recent rise in inflation in combination with more competition for orders and candidates. again, resulting in overall net spread compression. Our industrial contract services gross margin for the year was 15.8%, compared with 16.5% in the prior year, which was a decrease of 70 basis points. The gross margin for industrial contract services was 16.6% for the quarter, compared with 16.5% for the prior year quarter, an increase of 10 basis points. In addition to fewer job orders, we continue to experience challenges with our industrial business, including sourcing and recruiting qualified candidates, as well as increased competition, resulting in overall net spread compression experienced. Selling general and administrative expenses, or SG&A, for the fiscal year were $41.5 million, down 13% compared with the prior fiscal year. SG&A for the quarter was $10.7 million, down 5% as compared with the prior year quarter. The ratios of SG&A to revenues were 35.7% for the fiscal year compared with 31.2% for the prior year and were 37.9% for the quarter compared with 33% for the prior year quarter. The increases in SGA's percentage of revenues during the fiscal 2024 year and fourth quarter were primarily and mainly attributable to declines in revenues in relation to the level of fixed SG&A expenses, including fixed personnel-related expenses, occupancy costs, job boards, and applicable tracking systems, and due to the presence of certain non-cash and or non-operational and other non-recurring expenses. I also wish to inform you all that as a result of the company's performance in fiscal 2024, senior management did not earn and has not or will not in the future be paid any incentive compensation for that year under the company's annual incentive compensation program. As a matter of fact, Some of the performance-based equity awards previously granted to the senior management team members were clawed back under the workings of the company's annual incentive compensation plan based upon the fiscal 2024 performance. A key aspect of our plans to streamline operations that Derek spoke of in his opening remarks is to migrate and integrate our remaining legacy front and back office systems onto cloud-based platforms. And that means consolidation of some of these systems. The company has the financial means to do this and expects to commence this task in early 2025. We anticipate financial and operational returns, operational returns in terms of providing the means to improve our ability to generate organic growth, and to accelerate and integrate future accretive acquisitions more efficiently and achieve economies of scale more rapidly. We reported a net loss for the fiscal year of $24.1 million, or negative 22 cents per diluted share, as compared with net income of $9.4 million, or 8 cents per diluted share for the prior year. Our net loss for the quarter was $2.3 million, or negative 2 cents per diluted share, compared with net income of $200,000 or nil, zero per diluted share for the prior year quarter. Our adjusted net loss, which is a non-GAAP financial measure for the fiscal year was a negative $7.6 million, down $18.7 million as compared with adjusted net income of $11.1 million for the prior fiscal year. Our adjusted net loss for the quarter was 2.1, negative 2.1 million down 33.2 million, excuse me, as compared with the adjusted net income of 1.1 million for the prior year quarter. The main drivers of these declines in net income and loss for the quarter and the fiscal year were, I'm sorry, for the fiscal year were the 28.5 million dollars in non-cash impairment charges taken in the June quarter, and the declines in job orders and placements resulting in lower recurring revenues that we've discussed, as well as the reversal of evaluation allowance of our deferred tax assets in the prior year. EBITDA is a non-GAAP financial measure. and for the fiscal year was negative $4 million, down $9.3 million as compared with $5.3 million positive for the prior year. EBITDA for the quarter was negative $1.2 million, down $1.5 million as compared with positive $300,000 for the prior year. Adjusted EBITDA also is a non-GAAP measure, and for the fiscal year was negative $2.3 million, down $9.3 million as compared with $7 million for the prior year. Adjusted EBITDA for the quarter was a negative $1 million, down $2.2 million as compared with $1.2 million of adjusted EBITDA in the prior year quarter. Again, the main drivers for the declines in non-GAAP EBITDA and non-GAAP adjusted EBITDA for the quarter are the declines in job orders and placements resulting in lower revenues, as we've discussed. Our current or operating, I'm sorry, our current or working capital ratio as of September 30, 2024 was 3.8 to 1, up from 3.6 to 1 as of September 30, 2023. The company reported $200,000 and $5.9 million in cash flow from operations for the fiscal years ended September 30, 2024 and 2023 respectively. Our liquidity position at September 30, 2024 remains strong with $20.8 million in cash, an undrawn ABL credit facility with availability of $8.1 million, networking capital of $26.1 million and no outstanding debt. Our net book value per share and net tangible book value per share were 77 cents and 34 cents respectively as of September 30, 2024. Our net book value per share and net tangible book value per share were 96 cents and 35 cents respectively as of September 30, 2023. The decrease in net book value per share in particular was the result of the non-cash impairment charges taken in the third quarter into June 30, 2024. These had no effect on our cash position, tangible assets, networking capital, or net tangible book value. In conclusion, while we're obviously disappointed with our results and remain somewhat cautious in our near-term outlook, we do remain optimistic about and are preparing for the long term. Our management team and field leadership are experienced in managing through difficult times such as the business disruption attributable to COVID, and previous cyclical downturns affecting the labor markets. Collectively, we have demonstrated that our company can generate earnings consistently under more favorable economic conditions and a more conducive demand environment for the staffing industry. 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 the call back over to Derek.

Thank you, Kim. Despite some economic headwinds and staffing industry specific challenges impacting the demand for our services, we are aggressively managing our business and taking steps to increase revenue and reduce expenses to mitigate losses and restore profitability. What we hope to take away from our remarks today, our earnings release, and from our strategic announcement last quarter is that we are moving aggressively not only to prepare for a more conducive and growth-oriented recovery in the labor market, but also to restore growth sooner by executing on both organic and M&A growth plans and initiatives. We will continue to work hard for the benefit of our shareholders, including consistently evaluating strategic uses of GE Group's capital to maximize shareholder returns. Before we pause to take your questions, I want to again say a specific thank you to all our wonderful people for their professionalism, hard work, and dedication. Now, Kim and I would be happy to take questions. Please ask just one question and rejoin the queue where the follow-up is needed. If there's time, we'll come back to you for additional questions. So the first question that we have is, at what price would you start buying back stock?