GEE : Conference Call Transcript FY 2022

GEE Group Inc. (NYSE American: JOB) Fiscal Fourth Quarter and Fiscal Year Ended

September 30, 2022 Earnings and 2023 Update Webcast Conference Call: Prepared Remarks

Wednesday, December 21, 2022, 11:00 AM EST

https://event.webcasts.com/starthere.jsp?ei=1587760&tp_key=598187a8f1

Company Participants

Derek Dewan - Chairman and Chief Executive Officer

Kim Thorpe - Senior Vice President and Chief Financial Officer

Intro - Derek Dewan

Hello, and welcome to the GEE Group fiscal fourth quarter and year ended September 30, 2022 earnings and 2023 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.

Derek Dewan

It is our pleasure to share with you GEE Group's results for the fiscal year and fourth quarter ended September 30, 2022, and provide you with our outlook for fiscal year 2023 and the foreseeable future. Some comments Kim and I will make may be considered forward looking, including predictions and estimates 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 in Tuesday's earnings press release and our most recent Form 10-K 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.

During this presentation, we also will talk about some non-GAAP financial measures. Reconciliations and explanations of these measures are included in the earnings press release. Our presentation of financial amounts, and related amounts including growth rates, margins and trend metrics are rounded, or based upon rounded amounts, for purposes of this call and all amounts,

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GEE Group Inc. (NYSE American: JOB) Fiscal Fourth Quarter and Fiscal Year Ended

September 30, 2022 Earnings and 2023 Update Webcast Conference Call: Prepared Remarks

Wednesday, December 21, 2022, 11:00 AM EST

https://event.webcasts.com/starthere.jsp?ei=1587760&tp_key=598187a8f1

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.

With that business behind us, I am very happy to report that we achieved outstanding results in fiscal 2022 with revenue of $165.1 million for the year and revenue for our fiscal fourth quarter of $41.5 million. Gross profits and gross margins were $61.7 million and $15.1 million, and 37.4% and 36.3%, for the fiscal year and fourth quarter ended September 30, 2022, respectively. Our non-GAAP adjusted EBITDA for fiscal 2022 was $12.5 million, up $0.2 million, or 2%, compared to fiscal 2021, and represents a 7.5% margin to revenue. Non-GAAP adjusted EBITDA for the fiscal 2022 fourth quarter was $1.0 million compared to $3.6 million for fiscal 2021fourth quarter. We achieved net income of $19.6 million, or $0.17 per diluted share, for fiscal 2022 overall. We reported a small net loss of $800 thousand, or $(0.01) per diluted share, for the fiscal 2022 fourth quarter.

Before I turn it over to Kim, I want to say how very proud I am of our dedicated and talented people. They work extremely hard every day to insure that our clients get the very best service. This was a key factor in the outstanding performance of GEE Group in fiscal 2022 and will contribute greatly to the Company's future success.

At this time, I'll turn the call over to our CFO, Kim Thorpe, who will further elaborate on our fiscal 2022 annual and fourth quarter results. Kim.

Kim Thorpe

Thank you, Derek, and good morning. As Derek mentioned, revenues for fiscal 2022 were $165.1 million, up 11% as compared with fiscal 2021 revenues of $148.9 million. Revenues for the fourth

quarter of fiscal 2022 were $41.5 million, up slightly as compared with the revenues reported for

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GEE Group Inc. (NYSE American: JOB) Fiscal Fourth Quarter and Fiscal Year Ended

September 30, 2022 Earnings and 2023 Update Webcast Conference Call: Prepared Remarks

Wednesday, December 21, 2022, 11:00 AM EST

https://event.webcasts.com/starthere.jsp?ei=1587760&tp_key=598187a8f1

the fiscal 2021 fourth quarter. Contract staffing services contributed $138.5 million and $35.0 million, or 84% of revenues for both the fiscal year and fourth quarter ended September 30, 2022, respectively. Direct hire placement services contributed $26.6 million and $6.5 million, or 16% of revenues, for both the fiscal year and fourth quarter ended September 30, 2022, respectively.

Contract staffing services revenues for fiscal 2022 increased by $8.7 million, or 7%, as compared to fiscal 2021. Contract staffing services revenues were near level for each of the fiscal 2022 and 2021 fourth quarters.

Direct hire placement revenues for fiscal 2022 increased by $7.5 million, or 39%, as compared to fiscal 2021. Direct hire placement revenues were near level for each of the fiscal 2022 and 2021 fourth quarters. Direct hire placement revenues for fiscal 2022 set a record high for the Company, exceeding even pre-COVID-19 results.

The increases in total contract and direct hire placement services revenues for the fiscal year ended September 30, 2022 were primarily attributable to increased demand in our professional staffing services segment as the negative effects of COVID-19 have continued to lessen. In addition, the volatility experienced in the U.S. economy and workforce in 2022 created many opportunities and increased demand, particularly in the direct hire placement services market.

Total revenues from our professional staffing services segment, which includes contract staffing and direct hire placement services, were $149.2 million and $37.5 million and represented 90% of total revenue for both the fiscal year and fourth quarter ended September 30, 2022, respectively. Professional staffing services segment revenues were up 13% and 1%, respectively, from the comparable fiscal 2021 periods. Our highly specialized IT services vertical, which includes Agile Resources, Access Data Consulting, Paladin Consulting, and SNIT, accounted for 51% of our professional services business segment revenues for fiscal 2022 and were up 23% year-over-year.

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GEE Group Inc. (NYSE American: JOB) Fiscal Fourth Quarter and Fiscal Year Ended

September 30, 2022 Earnings and 2023 Update Webcast Conference Call: Prepared Remarks

Wednesday, December 21, 2022, 11:00 AM EST

https://event.webcasts.com/starthere.jsp?ei=1587760&tp_key=598187a8f1

The other professional services verticals (Finance, Accounting, Office Support, Engineering, Healthcare, and other) accounted for the remaining 49% of professional services business revenues for fiscal 2022 and were up 5% year-over-year.

Industrial staffing services revenues were $15.9 million and $4.0 million and represented 10% of total revenue for both the fiscal year and fourth quarter ended September 30, 2022, respectively. Industrial staffing services revenues were down 8% and 9%, respectively, from the comparable fiscal 2021 periods. We continued to experience some pandemic-related conditions associated with the delta and then omicron variants in our Ohio markets in the earlier quarters of fiscal 2022. These included school and business closings and interruptions which were reminiscent in some respects of the early COVID-19 pandemic.

Consolidated gross profits and margins were $61.7 million, or 37.4%, and $15.1 million, or 36.3%, for the fiscal year and fourth quarter ended September 30, 2022, respectively. Our consolidated gross margins for the last six consecutive quarters have been above 36%. The overall improvement in the Company's combined gross profit margin is largely due to substantial increases in our direct hire placements, which have 100% gross margins.

Selling, general and administrative expenses (SG&A) for the fiscal year and fourth quarter ended September 30, 2022 increased $10.3 million and $2.6 million, respectively. SG&A expenses were 31.4% and 34.8% of revenues for fiscal year and fourth quarter ended September 30, 2022, respectively, compared with 28.0% and 28.6% for the comparable fiscal 2021 periods. In addition to overall growth of the business, resulting in additional incentive compensation and bonuses, the increases in SG&A expenses and ratios were affected by $800 thousand in charges associated with two former positions that were eliminated during fiscal 2022. Also, a $400 thousand increase in bad debt expense associated with one of the Company's former industrial staffing services

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GEE Group Inc. (NYSE American: JOB) Fiscal Fourth Quarter and Fiscal Year Ended

September 30, 2022 Earnings and 2023 Update Webcast Conference Call: Prepared Remarks

Wednesday, December 21, 2022, 11:00 AM EST

https://event.webcasts.com/starthere.jsp?ei=1587760&tp_key=598187a8f1

customers, and a $1.0 million charge for the settlement of a legal matter were isolated expenses that added to our SG&A expenses in earlier quarters of fiscal 2022.

As Derek mentioned in his remarks, we achieved net income for fiscal 2022 of $19.6 million, or $0.17 per diluted share, as compared with net income of $6,000 or $0.00 per diluted share, for fiscal 2021. There was a small net loss for the fiscal 2022 fourth quarter of $800,000, or $(0.01) per diluted share, as compared with net income of $2.9 million, or $0.03 per diluted share, for the comparable fiscal 2021 quarter. Non-GAAP adjusted net income/loss and diluted EPS, excluding the effects of non-operating and/or non-recurring items, as outlined in the earnings press release, were $7.7 million, or $0.07 per diluted share, and a loss of $400,000, or $0.00 per diluted share, for the fiscal year and fourth quarter ended September 30, 2022, respectively.

Adjusted EBITDA, which is a non-GAAP financial measure, was $12.5 million for fiscal 2022, up $200 thousand, or 2%, compared to fiscal 2021. Non-GAAP adjusted EBITDA for the fiscal 2022 fourth quarter was $1.0 million compared to $3.6 million for the comparable fiscal 2021 quarter. Again, our fourth quarter results were impacted by the accrual of additional incentive compensation and bonuses commensurate with the significant improvements in revenues, earnings and production in fiscal 2022.

As we've commented in prior quarters, we believe these types of positive results are sustainable. A reconciliation of GEE Group's GAAP net income to the Company's non-GAAP adjusted EBITDA, and reconciliations of other non-GAAP measures with their GAAP counterparts, discussed today can be found in supplemental schedules as a part of our earnings press release.

To conclude, our current or working capital ratio at September 30, 2022 was 2.7 to 1. Consolidated accounts receivable, net of allowances for doubtful accounts, at the end of fiscal 2022 were $22.8 million, and our days' sales outstanding performance metric, or DSO, was approximately 49 days.

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