GEE Group Inc.

Hello and welcome to the GEE Group fiscal 2025 second quarter and first half ended March 31, 2025 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 GEE Group's results for the fiscal 2025 second quarter and first half ended March 31, 2025, and provide you with our outlook for the remaining fiscal year 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 judgment of what the future holds and are subject to risks and uncertainties that actual results may differ materially from our forward-looking statements. These risks and uncertainties are described below under the caption, forward-looking statement Safe Harbor and in Thursday's earnings press release in our most recent forms 10Q, 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 the periods being presented as this quarter or the quarter or this year to date or the year to date, which refers to the three-month or six-month periods ended March 31, 2025. respectively. Likewise, when we refer to the prior year quarter or prior year to date, we are referring to the comparable prior three-month or six-month periods ended March 31, 2024, respectively. During this presentation, we will 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, margins, and trend metrics, 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 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 the latter part of 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 the 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. Companies and businesses are cautiously assessing interest rates and market conditions, including recent tariff activities to ensure their investments in technology and human capital are strategic and sustainable. Artificial intelligence, or AI, also is gaining ground at an accelerated pace and is further complicating the HR and project planning opportunities and risk facing virtually all companies, including consumers of our services. These conditions have continued to have a cooling effect upon job orders for both temporary help and direct hire placements. Thus, our financial results for the 2025 fiscal second quarter and first half ended March 31, 2025 have been negatively impacted by these conditions. The company's contract and direct placement services are currently provided under the Professional Staffing Services Operating Division or segment. We finalized our plans to sell the company's former industrial staffing services segment in the quarter and are actively negotiating the sale currently. Therefore, it has been classified as a discontinued operation as of March 31, 2025 and is excluded from the results of operations reported below, as well as in the condensed consolidated financial statements included in our quarterly report on Form 10-Q for this quarter unless otherwise stated. Consolidated revenues were $24.5 million for the quarter and $48.5 million year-to-date. Gross profits and gross margins were $8.4 million and 34.1% respectively for the quarter and $16.3 million and 33.6% respectively year-to-date. Consolidated non-GAAP adjusted EBITDA was negative $600,000 for the quarter, negative $900,000 year-to-date. We reported a net loss from continuing operations of $33 million or $0.30 per diluted share for the quarter and a net loss from continuing operations of $33.6 million or $0.31 per diluted share year-to-date. The losses from continuing operations are primarily the result of a $22 million non-cash goodwill impairment charge and a $9.9 million non-cash charge corresponding with the establishment of a valuation allowance related to our net deferred tax assets recorded as of March 31, 2025. Both of these non-cast charges are the result of the application of the prescribed accounting rules to the company's current and expected near-term performance in light of the current and anticipated macroeconomic conditions impacting the demand for our services and the staffing industry as a whole. We are not sitting on our hands. We're taking our current situation for granted. We are working aggressively taking actions to adjust and enhance our strategic focus, growth plans, and financial performance and results. As we announced earlier, we have ramped up our M&A activities and completed our first such transaction in the quarter and are in the process of evaluation and diligence on several others. At the same time, we are focused on continuing to streamline our core operations, significantly reducing costs, and improving the productivity of our field personnel. In addition to the expense reduction and integration initiatives, which we began last fall, we have added a renewed focus on VMS and MSP source business, including the use of special offshore recruiting resources and acceleration of the integration and use of AI technology into our recruiting, sales, and other processes. Importantly, we anticipate achieving additional economies of scale, improvements in our productivity, and restoring profitability as soon as possible. Our goal and expectation is to become profitable again in the latter part of 2025 or early in 2026. In addition to these near-term initiatives, we are working closely with our frontline leaders in the field across all our verticals to help them continue to aggressively pursue new business and take market share, as well as opportunities to grow and expand existing client revenues. We are beginning to realize some positive results. When anticipated recovery does occur in the future, I am very confident that we are well positioned to meet the increased demand from existing customers and win new business. As you also 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 bonafide alternative use of excess capital in the future. If and when considered prudent, our focus on strategic accretive mergers and acquisitions will continue as well. Before I turn it over to Kim, I want to reassure everyone that we fully intend to successfully manage through the challenges 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 at levels very near and even slightly below tangible book value and that there is a good opportunity for upward movement in the share price once we are able to operate again in more normal economic and labor conditions and continue to execute on our capital allocation strategy as well. Management and our board of directors share and have embraced the primary objective of restoring and accelerating profitability and growing shareholder value. Finally, I once again wish to thank our wonderful, 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 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 2025 second quarter and year-to-date results. Kim.

Thank you, Derek, and good morning. As Derek mentioned, Consolidated revenues for the quarter and year to date were $24.5 million and $48.5 million, down 4% and 10% respectively from the comparable prior periods. Professional contract staffing services revenues for the quarter and year to date were $21.5 million and $43 million, down 7% and 11% respectively from the comparable prior periods. Direct hire placement revenues for the quarter and the year to date were $3 million and $5.5 million, up 22% for the quarter and slightly above even as compared with the prior six month period. Our top line performance this quarter and year to date has continued to be directly impacted by the difficult economic and labor market conditions facing us in the staffing industry. referenced by Derek in his opening remarks. Gross profit and gross margin for the quarter and year to date were $8.4 million and 34.1% and $16.3 million and 33.6% respectively compared with $8.4 million and 32.8% and $17.7 million and 33% respectively compared with the prior year periods comparable. The net increases in our gross margins are primarily attributable in the quarter to the increase in the mix of direct higher placement revenues, which have 100% gross margin in relation to total revenue. Selling general and administrative expenses or SG&A for the quarter were $9.3 million, down 3% as compared with the prior year quarter. SG&A expenses year to date were $17.7 million, down 10% as compared with the prior year to date. SG&A expenses were 38% of revenues for the quarter compared with 37.3% for the prior year quarter, and were 36.6% of revenues year to date as compared with 36.7% for the prior year to date. Our slightly higher SG&A percentages of revenues during fiscal 2025 second quarter and year to date was attributable mainly to lower levels of revenue in relation to our fixed SG&A, including mainly fixed personnel related expenses, occupancy costs, job boards, and applicant tracking systems. We plan to return to profitability through an increase in revenue and by significantly lowering our SDNA expenses going forward accordingly. Our goal is to return to profitability, as Derek mentioned, in the latter part of 2025 and early to mid-2026. Our loss from continuing operations for the quarter was $33 million, or 30 cents for diluted share, as compared with a net loss of $900,000, or a penny per diluted share, for the prior year quarter. Loss from continuing operations year to date was $33.6 million or a negative 31 cents per diluted share as compared with loss from operations of $2.4 million or two cents per diluted share for the prior year to date. As Derek previously explained, the increases in losses from continuing operations are primarily attributable to a $22 million non-cash goodwill impairment charge, and a $9.9 million non-cash charge corresponding with the establishment of a valuation allowance related to our deferred tax assets recorded as of March 31, 2025. EBITDA, which is a non-GAAP financial measure for the quarter and year-to-date, were negative $900,000 and negative $1.5 million, respectively, compared with negative $1.2 million and negative $2 million for the comparable prior year periods. Adjusted EBITDA, which also is a non-GAAP financial measure, for the quarter and year-to-date were negative $600,000 and negative $900,000, respectively, compared with the negative $600,000 and negative $700,000 for the comparable prior year period. Our current or working capital ratio as of March 31, 2025 was a robust 3.9 to 1. Free cash flow, a non-GAAP financial measure, including cash flows from discontinued operations for the fiscal year and first half was a negative $1.1 million as compared with positive cash flow of $400,000 for the fiscal 2024 first half. Our liquidity position as of March 31, 2025 remained very strong with $18.7 million in cash, an undrawn ABL facility of 7.4 million and net working capital of $24.1 million. We had no outstanding debt. Our net book value per share and net tangible book value per share were 46 cents and 23 cents respectively as of March 31, 2025. The decrease in net book value per share since fiscal 2024, again, was primarily the result of the non-cash impairment and deferred tax valuation related non-cash charges taken in the fiscal second quarter ended March 31, 2025. Importantly, these charges had no effect on our cash position, tangible assets, net working capital, or net tangible book value. In conclusion, while we obviously are disappointed with our results and face headwinds, causing us to remain appropriately cautious in the near term, we do remain optimistic and are preparing for the long term, including making technological advancements and other enhancements, such as a focus and prioritization of the integration of AI across our business verticals for use in our sales and recruiting processes, and leveraging our offshore recruiting team to maximize productivity and efficiency. Having completed our acquisition of Hornet staffing this quarter, we also intend to continue to pursue other accretive opportunities in a very disciplined and prudent manner. Before I turn it back over to Derek, please note that the reconciliations of G Group's non-GAAP financial measures discussed today with their GAAP counterparts can be found in supplemental schedules included in our March 31, 2025 second quarter and year-to-date earnings press release. Now I'll turn the call back over to Derek.

Thank you, Kim. Despite macroeconomic headwinds and staffing industry specific 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 is that we are moving aggressively not only to prepare for a more conducive and growth-oriented labor market, but also to restore profitability through expense reduction and revenue 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 GE Group's capital to maximize shareholder returns. We are very pleased with a 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. Before we pause to take questions i want to again say a special thank you to all our wonderful people for their professionalism hard work and dedication 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 thank you The first question that we have is, can you provide any additional color on the status of the current M&A pipeline and the number of deals you are looking at? We happily can tell you that the pipeline is robust and full. One of the secondary questions that we have as a follow-up said in this environment you must be cautious when looking at targets to make sure that they've leveled off from the decline that the industry has experienced starting in the latter part of 2023 continuing through 2024 in the first part of 25. that in fact we're doing and we're tracking closely the current performance of the targets we believe there's a lot of flatlining at this point and will allow us to proceed on these deals. Another question is, do you have any letters of intent that are outstanding? And of course, they're non-binding. I can say yes. The other question that we have related to M&A, do you expect to get M&A done in this fiscal year? The answer is, is yes. Kim, the next question that we have deals with pipeline. We got that. Kim, it said that in the 10-Q, the discussion of M&A was not prominent. I don't think that was by design. Can you comment on that?

Yeah. When we drafted the 10-Q this quarter, look back at the 10Q last quarter, our intention was just to be a little more brief. But we do still make reference to what I believe the questioner is asking about, which were the strategic initiatives where we talked about M&A and such. But the bottom line is M&A continues to be a prominent piece of our near-term and long-term strategy. However, we are being cautious about it because our entire industry is now in a place where revenues are at lower levels. So, again, we're just being very conservative and being very prudent about how we identify and move forward with targets. But nothing other than that, nothing's actually fundamentally changed.

Okay, thank you. Kim, will you comment on the status of the industrial business and its potential sale?

Yes. There's a question here that wants to know, in sum, it's basically what took you so long on the industrial sale. Actually, the sale was commissioned as part of the Strategic Alternatives Review last April not not this immediate April but April prior but it took some time for management to do some work at the business and then also to run a process we did not use professional institutional advisors so we ran it internally based on relationships and introductions that we reached out for and it's a process, but more or less we think that it's gone very well and that the end result will be good and it should close soon.

Thank you. Another question we have is regarding the potential for share repurchases and stock buybacks and Would you do these in conjunction with M&A in lieu of or otherwise? We recently had a board meeting and we had a deep discussion of both M&A and share repurchases. I can tell you that both are on the list of enhancing shareholder value and the timing of execution of either of those or both will be determined by visibility on our existing business. We'd like to be in a net neutral or positive cash flow position before we move forward on share repurchases. But we believe that both of those, share repurchases and M&A, can be done in tandem. And there has been A lot of attention put on both by our directors and senior management. So rest assured, we will deploy the capital appropriately and judiciously. We have been very careful not to make bad moves during an environment that is what I would call volatile for the industry with global macroeconomic challenges as well. we see on the horizon that those challenges will start to be more muted and will eventually turn around. So we are very excited about the opportunity that we can improve shareholder value this fiscal year and next, and that we have the liquidity to do it. And, Kim, I'll let you add your thoughts on that, too.

Yeah, I mean, I'm sorry, Derek, I was reading another question and devising an answer.

That's okay. So really the tandem of both stock buybacks and M&A, and I don't think one is in lieu of the other. I think that we've given a deep consideration and have both of those on the agenda for opportunities moving forward. And that's what I was commenting on.

Yeah. Yeah, I don't have anything to add. I agree. Yes.

Okay. Great. Kim, take the next question that you were taking a look at.

Yeah, I've got kind of a lengthy question here, and I'm not going to read it entirely because it's a little bit long. But basically, the idea is we commented back in December of 2023 when the stock price was around 49 cents, I made a comment and provided an analysis of why we thought that was a good stock price and basically verbally walked through some math to get there, including the application of a control premium and things of that nature. But without getting into all that, the point of the question is, Gee, you thought 49 cents didn't give any value to the business at December, 2023. Now the stock's trading at 18 cents. And basically you're saying there's no value being given to the operating business. And it's the, basically the point is how do I get from 2023 to now? And the answer is very simple. On December 19, 2023, we were just beginning to see. the severity of the downturn in the market. And it's been a long time since then to get to where we are now. And 2024 turned out to be much, much worse than we were forecasting in 2023. But what I would say to the writer of the question here is, if I take the 18 cents a share and our 23 cents, of tangible book value, that's still 27% above 18 cents. So the value of the businesses do change over time. And in our case, in 2023, we were projecting revenues that were a third higher than where they are now. So it's been very much a situation of dealing with a very, very challenging business environment that frankly is affecting the entire staffing industry. You could pose this question or one like it to almost every other competitor of ours out there.

Thank you, Kim. Sure.

Another question is whether or not the lack of action on either share repurchases or more aggressive acquisition activity is indicative of a strategy? And the answer is no. Both are very focused upon and the expectation is to use our capital appropriately for acquisitions and potential share repurchases as well. The pause was due to economic uncertainty at the time and trying to gauge the level of liquidity we need to maintain in the near term in order to execute appropriately on our strategy. And we believe, at this point, shareholders would like to see activity. We concur with that. So we get a little more visibility in 2025, which we think is somewhat stable at this point, and we hope that it stays that way. It actually turns into more prosperity when some of these macro factors settle down with interest rates, tariffs, inflation, tax cuts, and so forth. Our customers will be more confident on their growth plans, and we'll open this picket a bit so we can get organic growth. The M&A activity can speed up, and any capital allocation regarding share purchases share purchases that are prudent at that point will be implemented hopefully. So these are the things that we're focused on, having deep discussions on, and I can assure you that you as shareholders will see activity this year. We're excited about the prospects because we position ourselves. We're very close to break even financially. We're going to get to the profitability that we need. and then move forward on external growth and capital allocation, as I discussed. Another question, Kim, that we got is regarding the sale of industrial. What would we do with the proceeds? The answer to that is execute our growth strategy, which includes M&A, potential capital allocation for repurchase, and so forth. Correct. Any other questions? Go ahead, Kim.

No, we'll bring the proceeds back into our cash reserves, and then it'll be managed in due course as the board of management hammer out our capital allocation strategy and plans in the near term.

Another question is that, do we have any expectation of our larger shareholders Red Oak and Golden Wise any activity that we know about? The answer is no unusual activity there. Both have been good shareholders and supportive and would like to see obviously the stock price move forward and us to execute more rapidly on our strategy and we concur with both of those. We're aligned at this point. Insider purchases, I think that Mr. Sandberg and Mr. Waterfield as newer board members have made purchases a significant size. And I think most of us are pretty good exercise equity holders and insider purchases can happen, although we have to move around potential non-public information that will be not public because of our execution of our growth strategy.

and capital allocation but we can do that in tandem with what we want to do we just have to be careful of how we do it kim you want to take another question yeah what are you planning on doing specifically to reduce sgma um we have we have several things we're doing we're obviously we're constantly uh reviewing um performance of the different businesses And we're also looking at, you know, occupancy costs and job boards and all kinds of different things. We do have plans to take some costs out. Two things in particular that we think are going to be very helpful and contribute over the next 12 months to taking out significant costs are more of an assertive move into use of offshore recruiters, which are lower cost and can open up more VMS, MSP, high volume business to us. That's one. And the second one is artificial intelligence, AI. We believe AI has a lot of opportunity, presents a lot of opportunity for us. to make our recruiting not only more efficient, but higher quality, as well as facing our clients and in our sales processes. It's getting a lot, there's a lot going on out there right now. And so I would expect that you'll hear some stuff from us on both those accounts going forward in the near future.

Okay.

I think we covered most of the questions thus far. I think that the majority of the questions dealt with M&A, capital allocation regarding potential share repurchases, and kind of overall operational efficiencies to be gained this fiscal year. And of course, restoring profitability back to where it needs to be. So I can assure you that each of those has a lot of attention from senior management and our directors. We expect to execute very aggressively on all fronts and take advantage of the uptick or upswing in the industry, which we anticipate the latter part of the year moving into 2026. And in any event, even with a flat business environment, we can get market share from competitors, be more aggressive there as well. And we're pretty excited about the opportunity to get back to the road to prosperity. So at this point, we're going to terminate the call, but I really appreciate those shareholders that are on and other interested parties, and I can tell you we're working very hard to get performance to where it needs to be, which will also obviously influence share price. Thanks again for joining us, and that concludes our call.