GEE Group Inc (JOB) 2021 Q3 法說會逐字稿

Good day, everyone, and welcome to the GEE Group, Inc. third-quarter earnings call. Today's call is being recorded. At this time, I'd like to turn the conference over to Derek Dewan. Please go ahead.

Thank you, and welcome to the third-quarter earnings call for GEE Group. With me today is our Chief Financial Officer, Kim Thorpe as well, and I'm Derek Dewan, Chairman and Chief Executive Officer. Thank you for joining us today. It's our pleasure to share with you GEE Group's results for the fiscal third quarter ended June 30, 2021.

Some comments Kim and I will make on today's call may be considered forward-looking, including predictions and estimates about our future performance. These statements represent our current judgment of what the future holds. However, they're subject to risks and uncertainties that could cause actual results to differ materially from the forward-looking statements.

Risks and uncertainties are described in yesterday's press release and our most recent Form 10-K and Form 10-Q filed with the SEC under the captions cautionary statement regarding forward-looking statements and forward-looking statements Safe Harbor, we assume no obligation to update the statements made on today's call.

During this presentation, we will also mention and reference some non-GAAP financial measures. Reconciliations and further explanations of these measures are included in the supplemental schedules to our earnings press release or presentation of revenues, cost of services, gross profits, and gross margins and the related growth rates also includes results for our professional and industrial services segments. For your convenience, our prepared remarks for today's call are available in the Investor Center of our website at www.geegroup.com.

We achieved near record levels of revenues and earnings in the fiscal third quarter due to a relatively broad-based acceleration in demand for our permanent placement and contract staffing services. We are particularly pleased with the strength of our permanent placement results, which grew year over year by approximately 78% and approximately 51% sequentially over the 2021 fiscal second quarter.

I'm very proud of our core staffing, recruiters, business development and field leadership, in addition to our corporate services professionals, all of whom are the key to our success. For the 2021 fiscal third quarter, consolidated revenues were approximately $38.1 million, up 43% from last year's fiscal third quarter.

Net loss per diluted share in the fiscal third quarter was approximately negative $0.01, a major improvement compared to approximately negative $0.10 in the comparable fiscal 2020 third quarter. However, but for the effects of net gains and losses on extinguish debt and the last amount of interest expense incurred on our now paid off high-cost senior debt, we would have reported net income for this quarter. Our fiscal third-quarter 2021 results also were either on par with, or improved relative to those reported for the comparable pre-pandemic fiscal third quarter of 2019.

At this time, I'll turn the call over to our CFO, Kim Thorpe, who will further elaborate upon the results for the 2021 fiscal third quarter. Kim?

Thank you, Derek, and hello, everyone. As Derek noted, consolidated revenues of approximately $38.1 million in the fiscal 2021 third quarter we're up approximately 43% year over year, as compared to the 2020 fiscal third quarter, and up 10% sequentially. Professional staffing services revenues were approximately $34.3 million, up approximately 45% from the comparable prior year third quarter and up approximately 12% sequentially from the 2021 fiscal second quarter. Industrial staffing services revenues were approximately $3.8 million, up approximately 31% on a year-over-year basis and down approximately 6% sequentially as compared to the 2021 fiscal second quarter.

Today, we have 31 staffing locations in 11 states, including 27 branch offices and four additional markets that are virtual, where our staff members worked remotely. In the fiscal third quarter, there were approximately 63 billing days, which is about one billing day less than the same quarter one year ago, and approximately three billing days higher than the sequential prior quarter.

The current fourth quarter, which is our last fiscal 2021 quarter has 63 billing days compared to 64 billing days in the fiscal fourth quarter one year ago. Contract staffing services bill rates for the quarter increased approximately 9% compared to one year ago, including the effects of changes in the mix of revenues.

Professional direct hire or permanent placement services revenues were up 78% year over year and approximately 51% sequentially as compared to the 2021 fiscal second quarter. These comprised approximately 16% of total revenues for the professional services business segment and approximately 15% of all contract and direct hire revenue.

Professional contract services segment revenues also grew nicely, up approximately 40% year over year and approximately 6% sequentially over the 2021 fiscal second quarter. Our IT services end markets at Agile, Access Data, Paladin Consulting, and SNI accounted for approximately 45% of the professional services business segment revenues, and were up approximately 12% year over year, and approximately 13% sequentially.

The other professional services end markets: finance, accounting, administrative and office, engineering, healthcare, and others, accounted for the remaining approximately 55% of professional services business revenues and were up approximately 45% year over year, and 12% sequentially over the immediate prior quarter. Industrial services business segment revenues for the quarter were up approximately 31% year over year, and down 6% sequentially from the 2021 fiscal second quarter.

The year-over-year increase is consistent with the recovery from the COVID-19 pandemic. The sequential decrease is related to a number of factors, including slower volume recovery, coupled with a lower number of temporary laborers returning to work relative to a strong demand environment, which resulted in an increasing number of unfilled orders.

Our own experience has been consistent with a widely held observation that this is due mainly to an abundance of enhanced unemployment benefits, generous stimulus payments and refundable credits made available by states and the federal government. However, as these payments begin to scale down or terminate, we expect the supply of labor will increase and anticipate an increase in filled orders and related revenue.

Fiscal third quarter consolidated gross profit dollars were up approximately 43% year over year, and up approximately 27% sequentially as compared to the 2021 fiscal second quarter. Our professional staffing segment, fiscal third-quarter gross profit dollars were up 54% year over year, and approximately 26% sequentially as compared to the immediately preceding quarter.

Consolidated gross margin percentages were nearly level year over year and were up approximately 490 basis points, or just under five percentage points sequentially, as compared to the 2021 fiscal second quarter. As I mentioned a moment ago, our permanent placement revenues in the fiscal third quarter were approximately 15% of consolidated revenues compared with approximately 12% of consolidated revenues during the same quarter a year ago, and approximately 11% in the sequential prior quarter.

This higher mix of permanent placement revenue helped improve our gross margin. A higher industrial gross margin driven by a relatively significant workers compensation premium refund credit also helped the year ago's quarter relatively high consolidated gross margin.

Selling, general and administrative expenses were approximately 29% of consolidated revenues compared with approximately 38% of revenues in the fiscal third quarter of 2020. In addition to substantially higher revenue relative to fixed cost overall, this improvement is the result of higher productivity and compensation expense savings, lower occupancy costs, lower job boards advertising costs, and lower travel and entertainment.

Net loss attributable to common shareholders was approximately $0.9 million, or approximately negative $0.01 per diluted share for the quarter. Again, excluding the effects of net gains and losses on non-recurring debt extinguishments and interest on former high-cost senior debt retired, net income would have been approximately $1.6 million, or approximately $0.02 per diluted share.

Net income attributable to common shareholders in the same quarter a year ago was approximately $31.7 million, and earnings per diluted share was approximately $1.88. Last year's fiscal third-quarter results reflected substantial net gains on settlements and retirement of subordinated debt and mezzanine preferred stock for the benefit of common shareholders in the amounts of approximately $12.3 million and $24.5 million respectively.

Adjusted EBITDA, which is a non-GAAP financial measure, was approximately $3.1 million for the quarter, up approximately $1.7 million, or 129% year over year, and up approximately $1.1 million, or approximately 52% sequentially as compared to the immediately preceding quarter. This overall improvement reflects a combination of top-line recovery and growth since the beginning of the COVID-19 pandemic, cost savings stemming from integration and restructuring activities undertaken following our SNI acquisition, and most recently, cost-saving measures to mitigate the negative effects of COVID-19.

These have resulted in the higher productivity, lower compensation costs, lower occupancy related costs, lower job board advertising costs, and lower travel and entertainment reflected in our SG&A. A reconciliation of our net loss to our adjusted EBITDA for the quarter can be found in the supplemental schedule in yesterday's earnings release.

To conclude, our working capital ratio at June 30, 2021 was 1.2 to one, which includes approximately $11 million in CARES Act Payroll Protection Plan loans for which forgiveness has been requested. Consolidated accounts receivable net at the end of the fiscal third quarter were $20.3 million, and implied days sales outstanding or DSO was approximately 49 days. Also, as Derek mentioned in his opening remarks, the SBA has so far forgiven five of the nine PPP loans held by our operating companies in the aggregate amount of approximately $3.4 million.

And now with that, I'll turn the call back over to Derek.

Thank you, Kim. The 2021 fiscal third quarter has been a turning point for GEE Group. In addition to our good results, hallmarks include the successful completion of our follow-on public offering in which we raised approximately $52.5 million in cash, the closing of our new $20 million bank senior asset-backed credit facility, and the payoff and retirement of $60 million in former high-cost senior debt and fees.

In addition, the SBA has forgiven the first five of the nine PPP loans held by our operating companies in the aggregate amount of $3.4 million, and we have forgiveness applications pending for the remaining four, we reduced our senior-debt leverage from over approximately 12 to one at September 30, 2020, to approximately 1.6 to one as of June 30, 2021.

And at June 30, 2021, We had approximately $7.4 million of cash in the bank and approximately $13.1 million in availability under our new bank ABL facility. This all greatly enhances both the current enterprise value of our company and businesses, as well as our fundamentals and prospects for future profitable growth.

A year ago, the world faced an uncertain future with extraordinary challenges ahead. Along the way, we have continued to work tirelessly to help our clients safely, successfully endure this unprecedented period. We also strengthened our commitment to our professionals, enabling them to help clients with critical talent needs and find solutions across broad resource pools.

As a result, we closed the quarter with an employee base that is more engaged and productive than ever, with near record-high revenues and strong momentum leading into our final fiscal quarter of 2021. Supported by the strengths of our specialty brands, our talented people, our investments in technology, and our professional business model, we are excited about the continued ability to find meaningful and exciting employment for the people we place and provide clients access to the specialized talent, they need to grow and the deep subject matter expertise they need to confidently compete in a dynamic world.

Finally, we'd like to thank our wonderful employees for their professionalism, hard work and dedication without which, we could not have accomplished all the good things we have this quarter and this past year.

Now, Kim and I would be happy to answer your questions. (Conference Instructions)

I'd like to turn it over to the operator now for the Q&A session.

Thank you. (Operator Instructions)

John Basler, Basler Capital Partners.

Hi, guys. Congratulations on the quarter, and thanks a lot for doing the call. What is the timing of the PPP loan forgiveness application?

Kim, will you take that question, please?

Sure. We have filed the final applications with our bank in about May and June. Our bank, which is BBVA has, in the meantime, been acquired by PNC, but the short answer to your question is, we expect resolution sometime in the near future. It could be as soon as the close of the fiscal year, but some of the loans may spill over into the following year.

(Operator Instructions)

Marty Elbaum, Horizon Networks.

Hi. Good morning, gentlemen. Nice job. Congratulations. I think you did a great job turning the company around. Could you give us some color as to how the next two or three quarters look in the year end? And also, you mentioned in the past that you're looking for some acquisitions. Is that realistic still this year?

Sure. Thanks for getting on the call. The outlook is strong. Demand is high. We're able to fill a lot of the orders with highly specialized talent. On the industrial side of the business, it's coming back nicely as the stimulus payments and other government assistance payments start to tail off.

So our outlook (technical difficulty) even with surge, with the Delta variant and other variants, we've been able to do that by remote working, use of technology. The high-end IT is pretty much impervious somewhat to it and our customers have learned to navigate through it as well.

So our outlook is very good, and I can tell you as well, our balance sheet now will support that (technical difficulty) and as we continue to develop our internal growth, we'll augment that with acquisitions in the coming months. But our focus has been to get our house in order, so we're real excited about the prospects for the future.

(Operator Instructions)

John Basler, Basler Capital Partners.

Hi guys. Thanks for taking the follow up. Just on the restructuring add back from EBITDA, will those be continuing, or do you plan for them to go away, and over what timeframe? And then, on the M&A. What does the landscape look like for M&A in staffing businesses? And what functions are you looking to add? And as you look to finance those, what would the target leverage look like? Thank you.

Kim, will you take the first question and I'll take the second.

Yes. The answer, the short answer to the first question is yes, we do expect those to continue to reduce. They may not entirely go away, but as you can see from the reconciliation now, the amount of acquisition, integration and restructuring is about 10% of what it was in the year ago quarter.

The year-ago quarter had a lot of restructuring activity associated with it, including a lot of the measures that we took to prepare for the pandemic. And as opposed to this one, and the $151,000 that appears in this quarter is almost solely related to the closing of an office and the accrual of the remaining lease payments. So we do expect that line to remain relatively low from this point forward.

Thank you, Kim. As far as the acquisitions and what we're looking for, and what we've targeted. Cybersecurity, data analytics, big data, application development in the IT space, and we're heavily focused, and almost exclusively focused on increasing of the proportion of our business skewed toward the information technology segment. The reason why is, it's got the fastest growth metrics, the highest gross profit dollars per hour, and it is the most resilient to changes caused by the pandemic, and or downturns in the economy. So that's our area of emphasis and look for us to be executing in that space.

(Operator Instructions)

It appears there are no further questions at this time. Actually, we do.

Marty Elbaum, Horizon Networks.

Hello. Hi, guys. I was meant to ask this question before, I was just cut off. I think we have a great story, I'm very pleased with what's happening with your turnaround, you've done a great job. The problem is that I think we need an IR firm or some way to get the message out to let the financial community know about what you guys are doing. I think you've got a great story and it seems to me that now might be a time for looking at an IR firm to help plan your story. Have you thought about this? Any plans to hire someone in the future?

Great observation, Marty. We've actually made contact with a few firms, and tomorrow I have a couple (technical difficulty) and we will pursue that and look for us to execute along those lines.

I agree with you, that we were, (inaudible) with good news. So thank you. You're right on target and we agree with you 100%.

[Michael Anthony], Private Investor.

You all do a great job. You pay off a lot of debt, which is very important, and also, I've noticed on your website, you have five hedge funds actually invested in $0.60 in over $1 share, plus also, I have seen insiders bought it $0.60 in over $1 a share also, and your book value is around $1.47 a share. Trading very cheap to the share price currently.

Well, those are good observations, and we all agree that we're undervalued at this time. And it's a great price for the buyer. However, we're clearly not satisfied at this level, and as equity holders of -- substantial equity holders, the insiders that we have (technical difficulty) bullish. So your observations are right on target and we appreciate your investment and look for good things to be coming out as well going forward. More visibility, continued good execution on internal growth, and then, we'll augment that with acquisitions.

Yes sir. I'd like to talk to you further later, if you don't mind me calling you and talking to you, because I have a couple of questions to ask you, but in a better, later time, maybe. (multiple speakers)

We'll, that's fine. Go to our investor site, and if you want to list the questions there, feel free, and we'll contact you. Give us contact information, we'll be happy to speak with you.

Alright. Thank you very much.

Thank you for your investment.

And it appears there are no further questions at this time.

Okay. Well, thank you all for getting on the call today and your interest in our company. We look for good things to come. And again, stay safe, and we'll speak to you soon.

That concludes our call.

Again, that does conclude today's conference. Thank you all for your participation. You may now disconnect.