GEE : Conference Call Transcript Q3 2022

GEE Group Inc. (NYSE American: JOB) Fiscal Third Quarter Earnings and 2022 Update

Webcast Conference Call: Prepared Remarks

Tuesday, August 16, 2022, 11:00 AM EDT

https://event.webcasts.com/starthere.jsp?ei=1564964&tp_key=ac9e05f42b

Company Participants

Derek Dewan - Chairman and Chief Executive Officer

Kim Thorpe - Senior Vice President & Chief Financial Officer

Intro - Derek Dewan

Hello, and welcome to the GEE Group fiscal third quarter ended June 30, 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 fiscal 2022 third quarter ended June 30, 2022, and provide you with our outlook for the final quarter of our fiscal 2022 year and 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 Monday's earnings press release and our most recent Form 10-Q 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 trends

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GEE Group Inc. (NYSE American: JOB) Fiscal Third Quarter Earnings and 2022 Update

Webcast Conference Call: Prepared Remarks

Tuesday, August 16, 2022, 11:00 AM EDT

https://event.webcasts.com/starthere.jsp?ei=1564964&tp_key=ac9e05f42b

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.

With that business behind us, I am very happy to report that we once again achieved outstanding results, beginning with net income of $2.6 million, or $0.02 per diluted share, for the third quarter of our 2022 fiscal year, and for the nine-month periods ended June 30, 2022, net income of $20.4 million, or $0.18 per diluted share. Consolidated revenues for the three and nine-month periods ended June 30, 2022 were $41.1 million and $123.6 million, up 8% and 15%, respectively, over the comparable fiscal 2021 periods. And, gross profits and gross margins were $16.5 million and $46.6 million, and 40.1% and 37.7%, respectively. Our non-GAAP adjusted EBITDA for the 2022 fiscal third quarter was $4.1 million, up $1.0 million, or 34%, over the comparable prior fiscal year quarter, and represents a 10% margin to revenue. Non-GAAP adjusted EBITDA for the nine- month periods ended June 30, 2022 was $11.5 million, up $2.8 million, or 32%, compared to the nine-month periods ended June 30, 2021.

Before I turn it over to Kim, I want to say again 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 is one of, if not, the most important key to our success.

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

Kim Thorpe

Thank you, Derek, and good morning. As Derek mentioned, revenues for the three and nine-month periods ended June 30, 2022, were $41.1 million, and $123.6 million, up 8% and 15%, respectively, over the comparable fiscal 2021 periods. Contract staffing services contributed $33.1

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GEE Group Inc. (NYSE American: JOB) Fiscal Third Quarter Earnings and 2022 Update

Webcast Conference Call: Prepared Remarks

Tuesday, August 16, 2022, 11:00 AM EDT

https://event.webcasts.com/starthere.jsp?ei=1564964&tp_key=ac9e05f42b

million and $103.5 million, or 80% and 84% of revenues, respectively, and direct placement services contributed $8.0 million and $20.1 million, or 20% and 16% of revenues, respectively, for the three and nine-month periods ended June 30, 2022.

Contract staffing services revenues increased by $0.6 million and $8.7 million, or 2% and 9%, for the three and nine-months ended June 30, 2022, respectively. These increases were mainly attributable to increased demand in our professional contract services markets as the negative effects of COVID-19 lessen and the U.S. economy and workforce continue on recovery paths toward pre-COVID-19 conditions.

Direct hire placement revenues for the three and nine-months ended June 30, 2022, were $8.0 million and $20.1 million, up 45% and 60%, respectively, over the comparable fiscal 2021 periods. Direct hire revenues for Q3 2022 set a new high for us, and the first nine months of fiscal 2022 already have surpassed the entire 2021 fiscal year.

Total revenues from our professional staffing services segment, which includes contract staffing and direct hire placement services, were $37.0 million and $111.6 million, and represented 90% of total revenue for both the three and nine-month periods ended June 30, 2022, respectively. Professional staffing services segment revenues were up 8% and 18%, from the comparable fiscal 2021 periods, respectively. Our IT services end markets at Agile Resources, Access Data Consulting, Paladin Consulting and SNIT accounted for 48% of our professional services business segment revenues for the nine-months ended June 30, 2022 and were up 27% year-over-year. The other professional services end markets (Finance, Accounting, Administrative & Office, Engineering, Healthcare, and other) accounted for the remaining 52% of professional services business revenues for the nine-months ended June 30, 2022 and were up 14% year-over-year.

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GEE Group Inc. (NYSE American: JOB) Fiscal Third Quarter Earnings and 2022 Update

Webcast Conference Call: Prepared Remarks

Tuesday, August 16, 2022, 11:00 AM EDT

https://event.webcasts.com/starthere.jsp?ei=1564964&tp_key=ac9e05f42b

Industrial staffing services revenues were $4.1 million and $11.9 million for the three and nine- month periods ended June 30, 2022, respectively, compared with $3.8 million and $12.9 million for the three and nine-month periods ended June 30, 2021. We continued to experience some pandemic-related conditions associated with the delta and then omicron variants in our Ohio markets in earlier quarters of the fiscal year, including school and business closings and interruptions which were reminiscent in some respects of the early COVID-19 pandemic.

Consolidated gross profits and margins were $16.5 million, or 40.1%, and $46.6 million, or 37.7%, for the three and nine-month periods ended June 30, 2022, both up substantially from comparable fiscal 2021 periods. Our consolidated gross margins for the last five 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 three and nine-month periods ended June 30, 2022, increased $1.7 million and $7.7 million, respectively. SG&A expenses were 31.3% and 30.3% of revenues for the three and nine-month periods ended June 30, 2022, respectively, compared with 29.2% and 27.7% for the three and nine-month periods ended June 30, 2021. 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; $300 thousand during the three-month period ended June 30, 2022, and $500 thousand during an earlier quarter in fiscal 2022. In addition, a $400 thousand increase in bad debt expense associated with one of the Company's industrial staffing services customers and the $1.0 million charge for the settlement of a legal matter, added to our SG&A in earlier quarters of fiscal 2022.

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GEE Group Inc. (NYSE American: JOB) Fiscal Third Quarter Earnings and 2022 Update

Webcast Conference Call: Prepared Remarks

Tuesday, August 16, 2022, 11:00 AM EDT

https://event.webcasts.com/starthere.jsp?ei=1564964&tp_key=ac9e05f42b

As Derek mentioned in his remarks, we achieved net income for the three and nine-month periods ended June 30, 2022, of $2.6 million, or $0.02 per diluted share, and $20.4 million, or $0.18 per diluted share, as compared with net losses of $937 thousand, or $(0.01) per diluted share, and $(3.0) million, or $(0.07) per diluted share for the three and nine-month periods ended June 30, 2021. Non-GAAP adjusted net income and diluted EPS, excluding the effects of non-operating and/or non-recurring items, as outlined in the earnings press release, were $3.1 million, or $0.03 per diluted share, and $8.1 million, or $0.07 per diluted share, respectively, for the three and nine- month periods ended June 30, 2022.

Adjusted EBITDA, which is a non-GAAP financial measure, was $4.1 million for the 2022 fiscal third quarter, up $1.0 million, or 34%, over the comparable prior fiscal year quarter. Non-GAAP adjusted EBITDA for the nine-month periods ended June 30, 2022 was $11.5 million, up $2.8 million, or 32%, compared to the nine-month periods ended June 30, 2021.

As we've commented in prior quarters, assuming the spread, persistence and severity of COVID 19 continue to lessen, 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 supplemental schedules in our earnings press release.

To conclude, our current or working capital ratio at June 30, 2022 was 3.0 to 1. Consolidated accounts receivable, net of allowances for doubtful accounts, at the end of the 2022 fiscal third quarter were $21.2 million, and our days' sales outstanding performance metric, or DSO, was approximately 42 days. We reported positive cash flow from operating activities of $3.4 million for the 2022 fiscal third quarter and $7.8 million, year to date, and non-GAAP free cash flow of $3.4 million and $7.6 million, respectively. Our cash flow from operations and free cash flow for

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