GEE Group(JOB) - 2025 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) The unaudited condensed consolidated financial statements for the period ended June 30, 2025, show a decrease in total assets to $60.6 million from $95.9 million at September 30, 2024, primarily due to a significant goodwill impairment, with a consolidated net loss of $0.4 million for Q3 2025, an improvement from a $19.3 million loss in Q3 2024, but a $34.2 million net loss for the nine months ended June 30, 2025, driven by a $22.0 million goodwill impairment and a $9.7 million income tax expense related to a valuation allowance on deferred tax assets, alongside key events including the acquisition of Hornet Staffing, Inc. in January 2025 and the sale of the Industrial Segment in June 2025, now treated as a discontinued operation Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | September 30, 2024 | Change | | :--- | :--- | :--- | :--- | | Cash | $18,622 | $20,735 | $(2,113) | | Goodwill | $24,762 | $46,008 | $(21,246) | | Total Assets | $60,564 | $95,902 | $(35,338) | | Total Liabilities | $10,169 | $11,691 | $(1,522) | | Total Shareholders' Equity | $50,395 | $84,211 | $(33,816) | - Total assets decreased significantly, primarily driven by a reduction in goodwill from $46.0 million to $24.8 million[9][10] - Shareholders' equity also saw a substantial decline, largely due to an increase in the accumulated deficit from net losses[9][10] Condensed Consolidated Statements of Operations Statement of Operations Summary (in thousands) | Metric | Q3 2025 | Q3 2024 | 9 Months 2025 | 9 Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $24,523 | $27,048 | $73,043 | $80,774 | | Gross Profit | $8,681 | $9,229 | $24,967 | $26,958 | | Goodwill Impairment | $0 | $14,201 | $22,000 | $14,201 | | Loss from Operations | $(544) | $(20,717) | $(24,537) | $(24,303) | | Consolidated Net Loss | $(423) | $(19,286) | $(34,234) | $(21,849) | | Diluted Loss Per Share | $(0.00) | $(0.18) | $(0.31) | $(0.20) | - Net revenues declined by 9.3% YoY for the third quarter and 9.6% for the nine-month period[12] - The significant improvement in Q3 2025 net loss compared to Q3 2024 is due to the absence of large goodwill and intangible asset impairment charges that were recorded in the prior-year period[12] - However, a $22.0 million goodwill impairment charge was recorded in the nine months ended June 30, 2025, contributing to the larger net loss for that period[12] Condensed Consolidated Statements of Cash Flows Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,884) | $(1,117) | | Net cash used in investing activities | $(272) | $(58) | | Net cash used in financing activities | $(50) | $(1,701) | | Net change in cash | $(2,206) | $(2,876) | | Cash at end of period | $18,622 | $19,595 | - For the nine months ended June 30, 2025, cash used in investing activities included $968 thousand for a business acquisition (Hornet Staffing), offset by $712 thousand in proceeds from the sale of the Industrial Segment[16] - Cash used in financing activities in the prior year period was significantly higher due to $1.6 million in treasury stock purchases[16] Notes to Condensed Consolidated Financial Statements - On January 3, 2025, the Company acquired Hornet Staffing, Inc. for a total consideration of $1.5 million, consisting of $1.1 million in cash and $0.4 million in promissory notes[21][22][25] - The acquisition added $0.75 million in goodwill[21][22][25] - The company's Industrial Segment was classified as a discontinued operation and sold on June 2, 2025[27][28] - The sale resulted in a pre-tax net gain of $133 thousand[27][28] - An interim goodwill impairment assessment as of March 31, 2025, resulted in a non-cash impairment charge of $22.0 million for the Professional Services reporting unit[59] - Due to recent pre-tax book losses, management determined that the company's net deferred tax assets (DTAs) would not be realized, leading to an additional valuation allowance of $12.4 million being recorded during the nine months ended June 30, 2025[85] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the company's recent performance and net loss to adverse trends in the U.S. labor markets, strategically focusing on integrating AI into its operations, leveraging the recent acquisition of Hornet Staffing to expand into the MSP/VMS market, and improving cost efficiencies, with the divestiture of the Industrial Segment aligning with the long-term strategy to focus on professional staffing verticals, despite revenues from continuing operations declining 9% in Q3 2025 and 10% in the first nine months of fiscal 2025 compared to the prior year, reflecting challenging market conditions, while maintaining professional contract services gross margin and implementing cost reduction measures, with adequate liquidity of $18.6 million in cash and $6.6 million available under its credit facility as of June 30, 2025 Overview - GEE Group provides permanent and temporary professional staffing services, specializing in IT, accounting, finance, office, engineering, and medical scribes[94] - The Industrial Staffing segment was sold on June 2, 2025[94] - The acquisition of Hornet Staffing in January 2025 is intended to broaden the company's footprint in the professional contract staffing market, particularly with managed service providers (MSP) and vendor management systems (VMS)[95] - The company's long-term business strategy includes both organic growth (winning new clients, cost reduction) and strategic, accretive acquisitions[98] Results of Operations - The net loss of $0.4 million for Q3 2025 is attributed to continued adverse U.S. labor market trends, though it has lessened from prior quarters due to cost reductions and the absence of impairment charges in the current quarter[100] - The company is integrating Artificial Intelligence (AI) into its business strategy, focusing on placing AI talent and leveraging AI in verticals less likely to be disrupted[101] - The Hornet acquisition is expected to enhance competitiveness in securing business from large users of contingent labor by leveraging its expertise in MSPs/VMSs and its offshore recruiting model, which can reduce operational expenses[103][104] Revenue Comparison: Q3 2025 vs Q3 2024 (in thousands) | Service Line | Q3 2025 | Q3 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Professional contract services | $21,301 | $23,761 | $(2,460) | -10% | | Direct hire placement services | $3,222 | $3,287 | $(65) | -2% | | Consolidated net revenues | $24,523 | $27,048 | $(2,525) | -9% | Revenue Comparison: 9 Months 2025 vs 9 Months 2024 (in thousands) | Service Line | 9 Months 2025 | 9 Months 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Professional contract services | $64,310 | $71,977 | $(7,667) | -11% | | Direct hire placement services | $8,733 | $8,797 | $(64) | -1% | | Consolidated net revenues | $73,043 | $80,774 | $(7,731) | -10% | - A non-cash goodwill impairment charge of $22.0 million was recognized during the nine months ended June 30, 2025, compared to a $14.2 million charge in the prior-year period[139] Liquidity and Capital Resources Key Liquidity Metrics (in thousands) | Metric | June 30, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Cash | $18,622 | $20,828 | | Working Capital | $24,112 | $26,079 | - As of June 30, 2025, the company had no outstanding borrowings and $6.6 million of unused capacity available under its $20 million revolving credit facility[65][153] - During the nine months ended June 30, 2025, the company used $1.1 million in cash for the Hornet acquisition and received $0.7 million from the sale of the Industrial Segment[150][151] - Management believes that the company can generate adequate liquidity to meet its obligations for the foreseeable future and at least for the next twelve months[156] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is not applicable to the company for this reporting period - The company has indicated that quantitative and qualitative disclosures about market risk are not applicable[159] Item 4. Controls and Procedures Management, including the principal executive and financial officers, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2025, with no material changes in internal control over financial reporting during the nine-month period - Based on an evaluation as of June 30, 2025, the company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective[159] - No changes occurred in the company's internal control over financial reporting during the nine-month period ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, these controls[160] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reports no significant legal proceedings during the period - There are no pending significant legal proceedings to which the Company is a party[88][161] Item 1A. Risk Factors The company directs investors to the risk factors disclosed in its Annual Report on Form 10-K for the fiscal year ended September 30, 2024, indicating no material changes or new significant risks in the current quarter - The report refers to the risk factors disclosed in the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2024, for a comprehensive understanding of potential risks[162] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company provides details on its share repurchase program, which was authorized on April 27, 2023, for up to $20 million and concluded on December 31, 2023, by which time the company had repurchased 6,128,877 shares, representing approximately 5.4% of its outstanding common stock - A share repurchase program, authorizing up to $20 million in stock purchases, was active from April 27, 2023, through December 31, 2023[163] - Upon conclusion of the program, the company had repurchased an aggregate of 6,128,877 shares, accounting for about 5.4% of the issued and outstanding common shares prior to the program[164] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Asset Purchase Agreement for the sale of the Industrial Segment, certifications from the principal executive and financial officers, and Inline XBRL documents - Key exhibits filed with the report include the Asset Purchase Agreement related to the sale of BMCH, Inc. and certifications by the CEO and CFO as required by the Exchange Act[169]