GEE Group Inc.

Hello and welcome to the GEE Group fiscal 2025 first quarter ended December 31st, 2024 earnings and update webcast conference call. I'm Derek DeJuan, 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 today. It is our pleasure to share with you GE Group's results for the fiscal first quarter ended December 31st, 2024, and provide you with our outlook for the remaining fiscal year of 2025 and the foreseeable future. Some comments Kim 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, but 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 and our most recent Form 10-Q 10 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, which refers to the three-month period ended December 31st, 2024. Likewise, when we refer to the prior year quarter, we are referring to the comparable prior three-month period ended December 31st, 2023. During this presentation, we also will talk about some non-GAAP financial measures. Reconciliations and explanations of the non-GAAP measures that 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. Beginning in the second half of 2023, throughout 2024, and so far in 2025, we have encountered and continue to face very difficult and challenging conditions in the hiring environment for our staffing services. These have stemmed from what is now acknowledged as overhiring that took place in 2021 and 2022 in the immediate aftermath of the pandemic and the macroeconomic uncertainty, interest rate volatility, and inflation that followed. These conditions have produced a near universal cooling effect on U.S. employment, including businesses' use of contingent labor and the hiring of full-time personnel. Since 2023, many client initiatives such as IT projects and corporate expansion activities requiring additional labor in general have been put on hold. Instead, many of these businesses we serve have implemented and proceeded with layoffs and hiring freezes, and in many cases have focused on retaining their existing employees rather than adding new employees. These conditions have continued to negatively impact job orders for both temporary help and direct hire placements. Thus, our financial results for the 2025 fiscal first quarter ended December 31st, 2024 have been impacted by these conditions. Consolidated revenues were 26 million for the quarter ended December 31st, 2024. Gross profits and gross margins were 8.3 million and 31.9% respectively for the quarter. Consolidated non-GAAP adjusted EBITDA was a negative 300,000 for the quarter. We reported a net loss of 700,000 or one cent per diluted share for the quarter. We are taking aggressive actions to improve our financial results. As recently announced, we are taking this opportunity to ramp up our M&A activities and at the same time streamline our operations. Last fall, we eliminated an estimated $3 million in annual SG&A costs and continue to look for cost reduction opportunities on a routine basis and expect to eliminate more expenses. In addition to these near-term initiatives, We are working closely 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 beginning to see some positive results. When an anticipated recovery does occur in the future, I am very confident we are positioned to meet the increased demand from existing customers and win new business. I am also happy to report that we are now underway formulating and executing on our recently enhanced strategic plans, which include making practical 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 cash position with available attractive financing. On January 3rd, 2025, we acquired Hornet Staffing, Inc. Hornet provides staffing solutions to markets serving large scale blue chip companies in the information technology professional and customer service staffing verticals. It has an experienced offshore recruiting team, which will be utilized across all GEE group verticals to gain more efficiency and reduce recruiting costs. We expect the Hornet acquisition to enhance our ability to compete more effectively anticipated, helping to secure a new business from Fortune 1000 and other large users of contingent and outsourced labor. Hornet's workforce solutions include significant expertise in working with managed service providers, MSP, and vendor management systems, VMS. Hornets' initial post-acquisition results will be reflected in our consolidated financial statements beginning January 3, 2025, the closing date of the transaction, and are accretive to earnings. As you know, we paused share repurchases on December 31, 2023, having repurchased just over 5% 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. Before I turn it over to Kim, I want to reassure everyone that we fully intend to successfully manage through the challenges and headwinds outlined previously 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 to be acquisitive. We also continue to believe that our stock is undervalued and especially so based upon recent trading levels very near and even slightly below tangible book value and that there's a good opportunity for upward movement in the share price once we are able to operate again in a more normal economic and better labor market conditions. Finally, I once again wish to thank our dedicated employees and associates. They 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 an 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 2025 first quarter results. Kim.

Thank you, Derek, and good morning. As Derek reported, consolidated revenues for the quarter were $26 million, down 15% from the comparable prior year quarter. Consolidated contract staffing services revenues for the quarter were $23.5 million, down 15% from the comparable prior quarter. Professional contract services revenues were 21, I'm sorry, consolidated contract services revenues for the quarter were $23.5 million, down 15%. Professional contract services revenues were $21.5 million for the quarter, which represents 91% of all contract services revenue and 83% of total revenue and decreased $3.6 million or 14% as compared with the prior year quarter. Industrial contract services revenue was $2 million for the quarter, which represents 9% of all contract services revenue and 8% of total revenue and decreased $500,000 or 20% as compared with the prior year quarter. Direct higher revenues for the quarter were $2.5 million, down 18% as compared with the prior year quarter. Our top line performance was directly impacted by the difficult economic and labor conditions facing us and the staffing industry referenced by Derek in his opening remarks. Gross profit for the quarter was $8.3 million, down 15 percent as compared with the prior year quarter. Consolidated gross margins were 31.9 percent and 31.8 percent for the quarter and the prior year quarter, respectively. The small increase in our consolidated gross margin is mainly attributable to changes in the mix of our contract services businesses favoring higher spread temporary placements and margins offset to some extent by lower perm or direct higher revenue. Our gross margin for professional contract services was 25.2% for the quarter compared with 25% for the prior year quarter, an increase of 20 basis points. Our gross margin for the industrial contract services business was 18.5% for the quarter, compared with 16% for the prior year quarter, an increase of 250 basis points. Again, these increases are mainly due to the focus on higher margin businesses previously mentioned. Selling general and administrative expenses, or SG&A, for the quarter were $8.8 million, down 17% as compared with the prior quarter. The ratio of SG&A to revenues were 31.9 percent for the quarter compared to 34.6 percent for the prior quarter. The improvement in SG&A expenses as a percentage of revenues during the fiscal 2025 first quarter was primarily the result of cost reduction initiatives taken during the prior sequential quarter to decrease fixed SG&A expenses. including fixed personnel-related expenses, occupancy costs, job boards and applicant tracking systems, and the like that are not driven by revenues. We reported a net loss for the quarter of $700,000, or a loss of a penny per diluted share, as compared with a net loss of $1.6 million, or also approximately a penny per diluted share for the prior year quarter. Our adjusted net loss for the quarter was $600,000 as compared with adjusted net loss of $1 million for the prior quarter. The reduction in net loss is mainly due to the improvement in SG&A expenses as well as decreases in amortization and depreciation expense. Adjusted net loss is a non-GAAP financial measure. EBITDA, which also is a non-GAAP financial measure for the quarter was negative $600,000 compared with negative $900,000 for the prior year quarter. Adjusted EBITDA, which also is a non-GAAP financial measure for the quarter was a negative $300,000 as compared with negative $200,000 for the prior year quarter. Our current or working capital ratio as of December 31, 2024 was 4.7 to 1, up from 4.2 to 1 as of December 31, 2023. Our liquidity position as of December 31, 2024 remained very strong with $19.7 million in cash, an undrawn ABL credit facility with availability of $7 million, net working capital of $26 million, and no outstanding debt. Our net book value per share and our net tangible book value per share were 76 cents and 34 cents respectively as of December 31, 2024. Our net book value per share and net tangible book value per share were 93 cents and 33 cents respectively as of December 31, 2023. The decrease in net book value per share was primarily the result of a non-cash or of non-cash impairment charges taken in the fiscal third quarter into June 30, 2024. These had no effect on our cash position, tangible assets, net working capital, or net tangible book value. In conclusion, while we're disappointed with our results and remain cautious in our near-term outlook, we also remain optimistic and prepared for the long term. Our management team and field leadership are very experienced in managing through difficult times, such as the business interruption attributable to recent COVID pandemic and previous cyclical downturns affecting the labor markets. Collectively, we have demonstrated that our company can generate substantial earnings consistently under more favorable macroeconomic conditions and a more conducive demand environment for the staffing industry overall. Having completed our acquisition at Hornet this quarter, we also intend to continue to pursue other acquisition opportunities, taking advantage of the current environment to develop new platforms for profitable growth. Before I turn it back over to Derek, please note that reconciliations of G Group's non-GAAP financial measures talked about today with their GAAP counterparts can be found in the supplemental schedules included in our earnings press release. Now I'll turn the call back over to Derek.

Thank you, Kim. Despite macroeconomic headwinds and staffing industry challenges impacting the demand for our services, we are aggressively managing and preparing our business to mitigate losses, restore profitability, and be prepared for an anticipated recovery. What we hope you take away from our earnings press release and our remarks today and from our strategic announcements is that we are moving aggressively, not only to prepare for a more conducive and growth-oriented labor market, but also to restore growth by continuing with the execution 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 GEE Group's capital to maximize shareholder returns. We are very pleased with our recent acquisition of Hornet Staffing and the value and opportunities it brings and have identified other acquisition opportunities that we believe can offer additional growth and profitability platforms for us. 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.