GEE Group(US:JOB)2020-02-13 21:16PART I. FINANCIAL INFORMATION Financial Statements (unaudited) GEE Group Inc. reported Q1 2020 net revenues of $37.6 million, a $3.6 million net loss, and shareholders' equity decreased to $6.6 million Condensed Consolidated Balance Sheets Total assets increased slightly to $125.2 million, liabilities rose to $90.9 million, and shareholders' equity decreased to $6.6 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2019 | Sep 30, 2019 | | :--- | :--- | :--- | | Total Current Assets | $23,684 | $27,102 | | Goodwill | $72,293 | $72,293 | | Intangible assets, net | $22,483 | $23,881 | | Right-of-use assets | $5,470 | - | | Total Assets | $125,156 | $124,481 | | Total Current Liabilities | $13,432 | $18,568 | | Total long-term liabilities | $77,426 | $69,093 | | Total Liabilities | $90,858 | $87,661 | | Total Shareholders' Equity | $6,645 | $9,209 | Condensed Consolidated Statements of Operations Net revenues decreased to $37.6 million, resulting in a net loss of $3.6 million primarily due to higher SG&A and interest expense Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | | :--- | :--- | :--- | | Net Revenues | $37,557 | $38,543 | | Gross Profit | $12,595 | $12,731 | | (Loss) Income from Operations | $(173) | $19 | | Interest Expense | $(3,219) | $(2,948) | | Net Loss | $(3,563) | $(3,452) | | Basic and Diluted Loss Per Share | $(0.27) | $(0.32) | Condensed Consolidated Statements of Shareholders' Equity Shareholders' equity decreased from $9.2 million to $6.6 million, driven by a $3.6 million net loss, partially offset by share-based compensation Changes in Shareholders' Equity (in thousands) | Description | Amount | | :--- | :--- | | Balance, September 30, 2019 | $9,209 | | Share-based compensation | $597 | | Issuance of stock for interest | $402 | | Net loss | $(3,563) | | Balance, December 31, 2019 | $6,645 | Condensed Consolidated Statements of Cash Flows Operating activities used $1.5 million in cash, leading to an overall cash decrease of $1.9 million for the quarter, ending at $2.1 million Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(1,450) | $779 | | Net cash used in investing activities | $(58) | $(36) | | Net cash used in financing activities | $(408) | $(456) | | Net change in cash | $(1,916) | $287 | | Cash at beginning of period | $4,055 | $3,213 | | Cash at end of period | $2,139 | $3,500 | Notes to Condensed Consolidated Financial Statements The company faces significant liquidity challenges from net losses, relying on lender waivers for its complex debt, and adopted the ASC 842 lease accounting standard - The company faces significant liquidity challenges due to recent net losses, and its ability to meet future obligations is dependent on improving operations and maintaining lender support through waivers and amendments to its credit agreement2187159 - On October 1, 2019, the company adopted the new lease accounting standard ASC 842, resulting in the recognition of right-of-use assets of $5.9 million and total lease liabilities of $6.3 million on the balance sheet58 - The company has repeatedly required and successfully negotiated waivers and amendments to its Credit Agreement, with the sixth amendment occurring on February 12, 2020, which extended the maturity date to June 30, 2021, and was in compliance with its amended covenants as of December 31, 20198586171 Segment Performance (in thousands) | Segment | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | :--- | | Industrial Staffing | Revenue | $5,655 | $5,620 | | | Gross Margin % | 15.6% | 13.9% | | | Operating Income | $281 | $255 | | Professional Staffing | Revenue | $31,902 | $32,923 | | | Operating Income | $1,562 | $2,219 | Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated net revenue declined 3% due to fewer workdays, despite improved gross margin to 33.5%, leading to an operating loss and continued liquidity pressure Consolidated Net Revenues Breakdown (in thousands) | Revenue Source | Q1 2020 | Q1 2019 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Professional contract services | $27,423 | $28,394 | $(971) | (3%) | | Industrial contract services | $5,655 | $5,620 | $35 | 1% | | Direct hire placement services | $4,479 | $4,529 | $(50) | (1%) | | Consolidated net revenues | $37,557 | $38,543 | $(986) | (3%) | - The decrease in contract staffing revenue was primarily due to fewer workdays in the quarter because of holidays and inclement weather, as well as lower demand from a few key customers141 - The combined gross profit margin increased to 33.5% from 33.0% year-over-year, attributed to a better mix of higher-margin IT contract services and improved margins in the industrial staffing segment145146147 - The company continues to face liquidity challenges due to significant net losses and relies on its ability to negotiate waivers and amendments with its senior lenders to maintain operations and service its debt159 Quantitative and Qualitative Disclosures About Market Risk This section is not applicable for the reporting period - The company has indicated that quantitative and qualitative disclosures about market risk are not applicable186 Controls and Procedures Disclosure controls and procedures were effective as of December 31, 2019, with no material changes in internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report187 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls188 PART II. OTHER INFORMATION Legal Proceedings The company reported no legal proceedings during the period - There are no legal proceedings to report190 Risk Factors This section is not required for this filing - Disclosure of risk factors is not required in this quarterly report191 Unregistered Sales of Equity Securities and Use of Proceeds This section is not required for this filing - Disclosure of unregistered sales of equity securities and use of proceeds is not required in this quarterly report192 Defaults Upon Senior Securities The company reported no defaults upon senior securities - There were no defaults upon senior securities during the period193 Mine Safety Disclosures This section is not applicable to the company - Mine safety disclosures are not applicable to the company's business194 Other Information The company reported no other information - There is no other information to report for the period195 Exhibits Key exhibits filed include the Sixth Amendment to the Credit Agreement, a Subordinated Promissory Note amendment, and officer certifications - Key exhibits filed include: - 10.01: Sixth Amendment to the Revolving Credit, Term Loan and Security Agreement - 10.02: First Amendment to the Subordinated Promissory Note - 31.01 & 31.02: CEO and CFO certifications required by Rule 13a-14(a) - 32.01 & 32.02: CEO and CFO certifications required by Section 1350197