GEE : Conference Call Transcript Q1 2023

GEE Group Inc. (NYSE American: JOB) 2023 Fiscal First Quarter Ended December 31,

2022 Earnings and Update Webcast Conference Call: Prepared Remarks

Wednesday, February 15, 2023, 11:00 AM EST

Audience Event Link:

https://event.webcasts.com/starthere.jsp?ei=1599248&tp_key=8f9e6a43f6

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 2023 first quarter ended December 31, 2022 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.

Derek Dewan

It is our pleasure to share with you GEE Group's results for the 2023 fiscal first quarter ended December 31, 2022, and provide you with our outlook for the remainder of the 2023 fiscal year 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 that 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 Tuesday's earnings press and our most recent Form 10- Q, 10-K and other SEC filings under the captions, "Cautionary Statement Regarding Forward Looking Statements" and, "Forward-Looking Statements". 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 the non-GAAP measures we will address today are included

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GEE Group Inc. (NYSE American: JOB) 2023 Fiscal First Quarter Ended December 31,

2022 Earnings and Update Webcast Conference Call: Prepared Remarks

Wednesday, February 15, 2023, 11:00 AM EST

Audience Event Link:

https://event.webcasts.com/starthere.jsp?ei=1599248&tp_key=8f9e6a43f6

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.

We once again achieved very good results in fiscal 2023 first quarter beginning with consolidated revenues of $41.1 million. Our consolidated gross profit and gross margin were $14.4 million, and 35.0%, respectively, for the fiscal first quarter ended December 31, 2022. Our consolidated non-GAAP adjusted EBITDA for the fiscal 2023 first quarter was $2.0 million. We achieved consolidated net income of $700 thousand, or $0.01 per diluted share, for our fiscal 2023 first quarter. As Kim will explain further, the prior fiscal year's first quarter results were above average due to peak demand for direct hire and a significant amount of non-recurringCOVID-19-related project work. The current fiscal first quarter still compares favorably, taking into account the unique opportunities present in last year's first quarter, and particularly in terms of growth in our professional IT contract businesses.

Before I turn it over to Kim, I want to say "thank you" to our wonderful dedicated employees and associates. They work extremely hard every day to insure that our clients get the very best service. This was a key factor in the stellar performance of GEE Group in fiscal 2022 and so far in fiscal 2023, and will continue to be the most important underpinning of our 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 2023 first quarter results. Kim.

Kim Thorpe

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GEE Group Inc. (NYSE American: JOB) 2023 Fiscal First Quarter Ended December 31,

2022 Earnings and Update Webcast Conference Call: Prepared Remarks

Wednesday, February 15, 2023, 11:00 AM EST

Audience Event Link:

https://event.webcasts.com/starthere.jsp?ei=1599248&tp_key=8f9e6a43f6

Thank you, Derek, and good morning. Once again, revenue for the fiscal 2023 first quarter was $41.1 million, which is $1.7 million, or 4% lower, compared with the fiscal 2022 first quarter revenue of $42.8 million. As Derek eluded to, revenue for the prior fiscal 2022 first quarter included above average performance in our direct hire revenue, as well as professional contract revenue of $2.3 million generated from the discreet projects for clients serving as COVID-19 responders. The COVID-19 related projects successful concluded during December 2021 and January 2022, and are non-recurring in nature. Excluding the effects of them alone, our remaining total revenue increased $600 thousand, or 2%, quarter over quarter.

Professional and industrial contract staffing services revenues for fiscal 2023's first quarter were $35.4 million, which is $1.3 million, or 3% lower, as compared to fiscal 2022's first quarter contract staffing services revenue. Professional contract services revenue, which represents 90% of all contract services revenue and 77% of total revenue, increased $1.5 million, or 5%, quarter over quarter, excluding the effects of the nonrecurring COVID-19-related projects revenue. Professional IT contract services revenue grew 15% quarter over quarter. IT contract services represents 60% of all professional services contract revenue, 49% of total revenue, and is our highest priority growth specialty.

Direct hire revenue for the fiscal 2023 first quarter was $5.7 million, down $500 thousand, or 8%, compared with the fiscal 2022 first quarter direct hire revenue of $6.2 million. Considering its inherent sensitivity to macroeconomic conditions, we are pleased with this level of direct hire production and remain cautiously optimistic about our overall direct hire revenue potential for fiscal 2023. Direct hire revenue for Q1 2023 annualized still exceeds fiscal 2019, 2020 and 2021 results.

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GEE Group Inc. (NYSE American: JOB) 2023 Fiscal First Quarter Ended December 31,

2022 Earnings and Update Webcast Conference Call: Prepared Remarks

Wednesday, February 15, 2023, 11:00 AM EST

Audience Event Link:

https://event.webcasts.com/starthere.jsp?ei=1599248&tp_key=8f9e6a43f6

The increases in our quarter over quarter professional contract staffing services revenues and total revenues, absent fiscal 2022's non-recurringCOVID-19 projects, and in our professional IT contract staffing services sector, in particular, are the result of increasing demand and our strategic and tactical initiatives to meet this demand in the new post-COVID-19 U.S. economy and workforce. Two recent indicators, the outstanding December jobs report and, in contrast, recent significant lay-offs of IT professionals by larger employers, also are positive indicators for the remainder of fiscal 2023. Recent lower unemployment trends suggest increasing demand for our services, while recent IT corporate downsizing actions mean more IT candidates available to fill demand.

Industrial staffing services revenues were $3.6 million and represented 9% of total revenue for fiscal 2023's first quarter ended December 31, 2022. We continue to experience growth challenges in our industrial markets associated with economic and lingering post-COVID-19 conditions. Recent inflation also has led to significant increases in hourly wages in our industrial business, while at the same time, certain state and local COVID-19 and unemployment relief programs remain active in Ohio. We are finding that the combination of higher wages and benefits tends to cause many of the Company's temporary laborers to seek to moderate or reduce their hours in order to balance income streams and preserve their welfare and other government benefits and subsidies. This, in turn, has the effect of increasing competition among staffing firms in Ohio to fill temporary labor orders. We are actively introducing new sales and recruiting programs and price increases to restore growth and enhance profitability in our industrial business.

Gross profit for the fiscal 2023 first quarter was $14.4 million, down $1.2 million, or 8%, compared with fiscal 2022 first quarter gross profit of $15.6 million. Our overall gross margins were 35.0% and 36.4% for the fiscal 2023 and 2022 first quarters, respectively. The decrease in gross profit

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GEE Group Inc. (NYSE American: JOB) 2023 Fiscal First Quarter Ended December 31,

2022 Earnings and Update Webcast Conference Call: Prepared Remarks

Wednesday, February 15, 2023, 11:00 AM EST

Audience Event Link:

https://event.webcasts.com/starthere.jsp?ei=1599248&tp_key=8f9e6a43f6

and gross margin is mainly attributable to lower direct hire business, which has 100% gross margin, and increases in contractor pay associated with the recent rise in inflation resulting in some spread compression within our professional services businesses. The Company has recently stepped up counter-inflationary increases in bill rates and spreads in order to increase gross margin. Despite slightly lower quarter over quarter gross margin, it remains relatively high, as compared with those of our competitors.

Selling, general and administrative expenses (SG&A) for the fiscal 2023's first quarter ended December 31, 2022, increased $400 thousand, or 4%, compared with fiscal 2022's first quarter. SG&A expenses were 31% of revenues for fiscal 2023's first quarter, compared with 29% for the first quarter of fiscal 2022. Inflationary increases in costs, including strategic investments in sales, recruiting and management resources to take advantage of future growth opportunities account for the significant portion of the quarter over quarter increase. We expect these strategic investments to begin contributing to top line growth this fiscal year. In addition, we expect the implementation of counter-inflationary increases in bill rates and spreads I just spoke of and other targeted cost reductions to help improve our expense ratio and operating margin.

We achieved net income for fiscal 2023's first quarter of $700 thousand, or $0.01 per diluted share, as compared with net income of $16.7 million, or $0.14 per diluted share, for fiscal 2022's first quarter. Adjusted net income, which is a non-GAAP financial measure, for the fiscal 2023 first quarter was $1.1 million, or $0.01 per diluted share, down $1.6 million, or 59%, as compared with $2.7 million, or $0.02 per diluted share, for the fiscal 2022 first quarter. The fiscal 2022 first quarter net income included gains on the forgiveness of former PPP loans of $16.8 million, and a non-cash goodwill impairment charge of $2.15 million.

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