Overview
GEE Group Inc. and its wholly owned material operating subsidiaries, Access Data
Consulting Corporation, Agile Resources, Inc., BMCH, Inc., Paladin Consulting,
Inc., Scribe Solutions, Inc., SNI Companies, Inc., Triad Logistics, Inc., and
Triad Personnel Services, Inc. (collectively referred to as the "Company", "us",
"our", or "we") are providers of permanent and temporary professional and
industrial staffing and placement services in and near several major U.S cities.
We specialize in the placement of information technology, accounting, finance,
office, and engineering professionals for direct hire and contract staffing for
our clients, data entry assistants (medical scribes) who specialize in
electronic medical records (EMR) services for emergency departments, specialty
physician practices and clinics, and provide temporary staffing services for our
industrial clients. The acquisitions of Agile Resources, Inc., a Georgia
corporation ("Agile"), Access Data Consulting Corporation, a Colorado
corporation ("Access"), Paladin Consulting Inc. ("Paladin") and SNI Companies,
Inc., a Delaware corporation ("SNI") expanded our geographical footprint within
the placement and contract staffing verticals or end markets of information
technology, accounting, finance, office and engineering professionals.
The Company markets its services using the trade names General Employment
Enterprises, Omni One, Ashley Ellis, Agile Resources, Scribe Solutions Inc.,
Access Data Consulting Corporation, Paladin Consulting Inc., SNI Companies,
Accounting Now, Staffing Now®, SNI Banking, SNI Certes®, SNI Energy®, SNI
Financial®, SNI Technology®, Triad Personnel Services and Triad Staffing. As of
December 31, 2022, we operated from locations in eleven (11) states, including
twenty-seven (27) branch offices in downtown or suburban areas of major U.S.
cities and four (4) additional U.S. locations utilizing local staff members
working remotely. We have offices or serve markets remotely, as follows; (i) one
office in each of Connecticut, Georgia, Minnesota, and New Jersey, and one
remote local market presence in Virginia; (ii) two offices each in Illinois and
Massachusetts; (iii) three offices in Colorado; (iv) three offices and two
additional local market presences in Texas; (v) six offices and one additional
local market presence in Florida; and (vi) seven offices in Ohio.
Management has implemented a strategy which includes organic and acquisition
growth components. Management's organic growth strategy includes seeking out and
winning new client business, as well as expansion of existing client business
and on-going cost reduction and productivity improvement efforts in operations.
Management's acquisition growth strategy includes identifying strategic
acquisitions, financed primarily through a combination of cash and the issuance
of equity and debt to improve the overall profitability and cash flows of the
Company.
The Company's contract and placement services are principally provided under two
operating divisions or segments: Professional Staffing Services and Industrial
Staffing Services. We believe our current segments and array of businesses and
brands within our segments complement one another and position us for future
growth.
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(Amounts in thousands except per share data, unless otherwise stated)
Results of Operations
Three Months Ended December 31, 2022 Compared to the Three Months Ended December
31, 2021
Net Revenues
Consolidated net revenues are comprised of the following:
Three Months
Ended December 31,
2022 2021 Change Change
Professional contract services $ 31,783 $ 32,595 $ (812) -2%
Industrial contract services 3,618 4,089 (471) -12%
Total professional and industrial
contract services 35,401 36,684 (1,283) -3%
Direct hire placement services 5,747 6,163 (416) -7%
Consolidated net revenues $ 41,148 $ 42,847 $ (1,699) -4%
Contract staffing services contributed $35,401 or approximately 86% of
consolidated revenue and direct hire placement services contributed $5,747, or
approximately 14%, of consolidated revenue for the three months ended December
31, 2022. This compares to contract staffing services revenue of $36,684, or
approximately 86%, of consolidated revenue and direct hire placement revenue of
$6,163, or approximately 14%, of consolidated revenue for the three months ended
December 31, 2021.
The net decrease in professional contract services revenues of $812, or 2%, for
the three months ended December 31, 2022 compared to the three months ended
December 31, 2021, was attributable to completion of certain significant
discreet projects as the three-month period ended December 31, 2021 included
revenue for staffing support provided to vaccination and testing facilities
related to COVID-19 and its variants which have since downsized or closed. These
discreet projects generated $2,325 in revenue during the three-month period
ended December 31, 2021. Excluding the effects of these discreet projects,
professional contract services revenues would have increased $1,513, or 5%,
during the three months ended December 31, 2022 compared to the three months
ended December 31, 2021. Industrial staffing services for the quarter decreased
by $471, or 12%, mainly due to a decrease in orders from clients. The industrial
staffing markets continue to stabilize after the effects of COVID-19; however,
competition for orders and temporary labor to fill orders also has increased.
Direct hire placement revenue for the three months ended December 31, 2022
decreased by $416, or approximately 7%, over the three months ended December 31,
2021. Demand for the Company's direct hire services decreased during the three
months ended December 31, 2022, in part, due to a slowing in permanent placement
orders from clients as economic uncertainties linger, including some predictions
of a potential recession. It also is noteworthy that our 2022 fiscal year, which
included the three months ended December 31, 2021, set a record of being one of
our highest ever in terms of direct hire revenues.
Cost of Contract Services
Cost of contract services includes wages and related payroll taxes and employee
benefits of the Company's contract services employees, and certain other
contract employee-related costs, while working on contract assignments. Cost of
contract services for the three months ended December 31, 2022 decreased by
approximately 2% to $26,757 compared to $27,265 for the three months ended
December 31, 2021. The $508 overall decrease in cost of contract services is
consistent with the decrease in revenues as discussed above.
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(Amounts in thousands except per share data, unless otherwise stated)
Gross Profit percentage by service:
Three Months
Ended December 31,
2022 2021
Professional contract services 25.4% 27.0%
Industrial contract services 15.5% 15.3%
Professional and industrial services combined 24.4% 25.7%
Direct hire placement services 100.0% 100.0%
Combined gross profit margin (1) 35.0% 36.4%
(1) Includes gross profit from direct hire placements, for which all associated
costs are recorded as selling, general and administrative expenses.
The Company's combined gross profit margin, including direct hire placement
services (recorded at 100% gross margin) for the three-month period ended
December 31, 2022 was approximately 35.0% as compared with approximately 36.4%
for the three-month period ended December 31, 2021.
In the professional contract staffing services segment, the gross margin
(excluding direct placement services) was approximately 25.4% for three-month
period ended December 31, 2022 as compared with approximately 27.0% for the
three-month period ended December 31, 2021. This is due in part to increases in
contractor pay associated with the recent rise in inflation resulting in some
spread compression. The Company has stepped-up counter-inflationary increases in
bill rates and spreads where possible in response to this margin compression.
The Company's industrial staffing services gross margin for the three-month
period ended December 31, 2022 was approximately 15.5% versus approximately
15.3% for the three-month period ended December 31, 2021. Gross profit for the
Company's industrial staffing services segment for the three months ended
December 31, 2021 includes $18 of annual premium refunds from the Ohio Bureau of
Workers Compensation insurance programs, while the three months ended December
31, 2022 did not include any refunds. The Industrial Services gross margin
excluding the effect of these refunds and distributions was approximately 14.8%
for the three months ended December 31, 2021. The increase, excluding the
effects of the workers compensation premium refunds and distributions, is mainly
attributable to an increase in rates enacted to offset increases in contractor
payroll, leading to a higher spread in the Industrial Segment.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") include the following
categories:
• Compensation and benefits in the operating divisions, which includes
salaries, wages and commissions earned by the Company's employment
consultants, recruiters and branch managers on permanent and temporary
placements;
• Administrative compensation, which includes salaries, wages, share-based
compensation, payroll taxes, and employee benefits associated with general
management and the operation of corporate functions, including
principally, finance, human resources, information technology and
administrative functions;
• Occupancy costs, which includes office rent, and other office operating
expenses;
• Recruitment advertising, which includes the cost of identifying and
tracking job applicants; and
• Other selling, general and administrative expenses, which includes travel,
bad debt expense, fees for outside professional services and other
corporate-level expenses such as business insurance and taxes.
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(Amounts in thousands except per share data, unless otherwise stated)
The Company's SG&A for the three months ended December 31, 2022 increased by
$449 as compared to the three months ended December 31, 2021. SG&A for the three
months ended December 31, 2022, as a percentage of revenues, was approximately
31% compared to approximately 29% for the three months ended December 31, 2021.
The increase in SG&A expenses as a percentage of revenues is primarily
attributable to additional incentive compensation and awards for producers
related to recent performance.
SG&A also includes certain non-cash costs and expenses incurred related to
acquisition, integration, restructuring and other non-recurring activities, such
as certain corporate legal and general expenses associated with capital markets
activities, that either are not directly associated with core business
operations or have been eliminated on a going forward basis. These costs were
estimated to be $44 and $526 for the three months ended December 31, 2022 and
2021, respectively, and include mainly expenses associated with former closed
and consolidated locations, and personnel costs associated with eliminated
positions.
Depreciation Expense
Depreciation expense was $101 and $86 for the three months ended December 31,
2022, and 2021, respectively. The increase in depreciation expense is due to
recent net additions to fixed assets.
Amortization Expense
Amortization expense was $720 and $1,014 for the three months ended December 31,
2022 and 2021, respectively. The decrease is due to intangible assets related to
certain non-compete agreements and trade names becoming fully amortized.
Goodwill Impairment
The Company recently completed its annual goodwill impairment assessment, as of
September 30, 2022, and determined that its goodwill was not impaired. As of
December 31, 2021, the Company performed an interim assessment of its goodwill
for impairment and recognized a non-cash impairment charge of $2,150 during the
three months ended December 31, 2021.
Income (Loss) from Operations
The income (loss) from operations was $762 and $(27) for the three months ended
December 31, 2022 and 2021, respectively. This increase of $789 is mainly
attributable to the non-cash goodwill impairment charge of $2,150 impacting
results for the three months ended December 31, 2021, offset as a result of the
combination of matters in regards to the Company's revenues, costs and expenses
as discussed above.
Gain on Extinguishment of Debt
The Company recorded a gain of $16,773 for the three months ended December 31,
2021 related to forgiveness and extinguishment of its remaining PPP loans and
accrued interest.
Interest Expense
Interest expense was $73 for the three months ended December 31, 2022, which
decreased by $34 compared to the three months ended December 31, 2021. The
decrease in interest expense is mainly attributable to the three months ending
December 31, 2021 including interest of $32 on the Company's remaining PPP loans
which were forgiven during that quarter.
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(Amounts in thousands except per share data, unless otherwise stated)
Interest Income
The Company began holding cash in a money market account in August 2022 on which
interest has since been earned on a monthly basis. Interest income earned from
this account was $38 for the three months ended December 31, 2022.
Provision for Income Taxes
The Company recognized income tax expense (benefits) of $73 and $(29) for the
three months ended December 31, 2022 and 2021, respectively. Our effective tax
rates for the three months ended December 31, 2022 and 2021 are lower than the
statutory rate primarily due to the effect of the change in valuation allowance
on the net DTA position.
Net Income
The Company's net income was $654 and $16,668 for the three months ended
December 31, 2022 and 2021, respectively. The decrease in net income is mainly
attributable to gains of $16,773 from extinguishment of the Company's remaining
PPP loans, offset by a $2,150 non-cash goodwill impairment charge during the
three months ended December 31, 2021. The remaining net decrease of $1,391 is
consistent with the decrease in gross profit and gross margin for the three
months ended December 31, 2022 compared with the three months ended December 31,
2021, as explained in the preceding paragraphs.
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(Amounts in thousands except per share data, unless otherwise stated)
Liquidity and Capital Resources
The primary sources of liquidity for the Company are revenues earned and
collected from its clients for the placement of contract employees and
independent contractors on a temporary basis and permanent employment candidates
and borrowings available under its asset-based senior secured revolving credit
facility. Uses of liquidity include primarily the costs and expenses necessary
to fund operations, including payment of compensation to the Company's contract
and permanent employees, and employment-related expenses, operating costs and
expenses, taxes and capital expenditures.
The following table sets forth certain consolidated statements of cash flows
data:
Three Months
Ended December 31,
2022 2021
Cash flows (used in) provided by operating activities $ (326) $ 2,264
Cash flows used in investing activities
$ (50) $ (84)
Cash flows used in financing activities $ - $ -
As of December 31, 2022, the Company had $18,472 of cash, which was a decrease
of $376 from $18,848 as of September 30, 2022. As of December 31, 2022, the
Company had working capital of $28,536 compared to $26,643 of working capital as
of September 30, 2022. The increase in working capital is mainly attributable to
the final installment of deferred payroll taxes under the CARES Act being paid
and annual incentive compensation payments during the three months ended
December 31, 2022, which were reflected in current liabilities in the aggregate
amount of $3,027 as of September 30, 2022. These payments also account for
corresponding reductions in cash flows provided by operating activities and
ending cash as of December 31, 2022.
The primary uses of cash for investing activities were for the acquisition of
property and equipment in the three-month periods ended December 31, 2022 and
2021.
There were no cash flows used in financing activities for the three-month
periods ended December 31, 2022 and 2021.
The Company had approximately $13,029 in availability for borrowings under its
CIT Facility as of December 31, 2022. There were no outstanding borrowings on
the CIT Facility as of December 31, 2022, or September 30, 2022, except for
certain accrued carrying fees and costs, which are included in other current
liabilities in the accompanying consolidated balance sheets.
All the Company's office facilities are leased. Minimum lease payments under all
the Company's lease agreements for the twelve-month period commencing after the
close of business on December 31, 2022, are approximately $1,449. There are no
minimum debt service principal payments due during the twelve-month period
commencing after the close of business on December 31, 2022.
Management believes that the Company can generate adequate liquidity to meet its
obligations for the foreseeable future and at least for the next twelve months.
Off-Balance Sheet Arrangements
As of December 31, 2022, there were no transactions, agreements or other
contractual arrangements to which an unconsolidated entity was a party, under
which the Company (a) had any direct or contingent obligation under a guarantee
contract, derivative instrument or variable interest in the unconsolidated
entity, or (b) had a retained or contingent interest in assets transferred to
the unconsolidated entity.
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(Amounts in thousands except per share data, unless otherwise stated)
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GEE GROUP INC. 
