GEE Group(JOB) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements for GEE Group Inc. as of March 31, 2023, and for the three and six-month periods then ended, including balance sheets, statements of operations, cash flows, and notes, highlighting a decrease in net income primarily due to a prior-year one-time gain on debt extinguishment Condensed Consolidated Balance Sheets | Balance Sheet Highlights (in thousands) | March 31, 2023 | September 30, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash | $20,099 | $18,848 | | Accounts receivable, net | $20,431 | $22,770 | | Goodwill | $61,293 | $61,293 | | Total Assets | $118,109 | $119,554 | | Liabilities & Equity | | | | Total current liabilities | $11,359 | $15,579 | | Total Liabilities | $15,294 | $18,551 | | Total Shareholders' Equity | $102,815 | $101,003 | Condensed Consolidated Statements of Operations | Statement of Operations (in thousands) | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $38,859 | $39,629 | $80,007 | $82,476 | | Gross Profit | $13,216 | $14,514 | $27,607 | $30,096 | | Income from Operations | $694 | $1,177 | $1,456 | $1,150 | | Gain on extinguishment of debt | - | - | - | $16,773 | | Net Income | $658 | $1,087 | $1,312 | $17,755 | | Diluted EPS | $0.01 | $0.01 | $0.01 | $0.15 | Condensed Consolidated Statements of Cash Flows | Cash Flow Summary (in thousands) | Six Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,439 | $4,456 | | Net cash used in investing activities | ($84) | ($155) | | Net cash used in financing activities | ($104) | ($73) | | Net change in cash | $1,251 | $4,228 | | Cash at end of period | $20,099 | $14,175 | Notes to Condensed Consolidated Financial Statements - The company performed an interim goodwill impairment assessment as of March 31, 2023, determining no impairment was present, contrasting with a $2.15 million goodwill impairment charge recorded in the six months ended March 31, 2022[31] - As of March 31, 2023, the company had no outstanding borrowings on its $20 million revolving credit facility and had $13.3 million available for borrowing[34][35] - In the six months ended March 31, 2022, the company recognized a gain of $16.77 million from the forgiveness of its remaining PPP loans[37] Segment Performance (in thousands) | Segment Performance (in thousands) | Six Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2022 | | :--- | :--- | :--- | | Professional Staffing Services | | | | Total Revenue | $73,163 | $74,652 | | Income from operations | $4,518 | $4,851 | | Industrial Staffing Services | | | | Total Revenue | $6,844 | $7,824 | | Income from operations | $37 | $692 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a slight decline in consolidated revenues for both the three and six-month periods ended March 31, 2023, primarily driven by a cyclical downturn in direct hire placement services and reduced demand in industrial staffing, with gross margins compressing due to wage inflation, and net income decreasing significantly due to a prior-year one-time gain from PPP loan forgiveness, while maintaining a strong liquidity position and initiating a share repurchase program Results of Operations - Three Months Ended March 31, 2023 | Revenue Breakdown (in thousands) | Q2 2023 | Q2 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Professional contract services | $30,751 | $30,009 | $742 | 2% | | Industrial contract services | $3,225 | $3,736 | ($511) | -14% | | Direct hire placement services | $4,883 | $5,884 | ($1,001) | -17% | | Consolidated net revenues | $38,859 | $39,629 | ($770) | -2% | - Direct hire placement revenue decreased by 17% YoY, which management attributes to the highly cyclical nature of this service following a record high in fiscal 2022[65] - The combined gross profit margin decreased to 34.0% from 36.6% in the prior-year quarter, with professional contract services margin compressing to 25.4% from 26.9% due to inflation, while industrial services margin improved to 16.5% from 14.7% due to price increases[67][68][69] - SG&A expenses decreased by $523,000 compared to the prior year, which included a one-time legal settlement of $975,000, and the company implemented cost reductions in Q1 2023 with estimated annual savings of approximately $4.0 million[71] Results of Operations - Six Months Ended March 31, 2023 | Revenue Breakdown (in thousands) | YTD 2023 | YTD 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Professional contract services | $62,533 | $62,605 | ($72) | 0% | | Industrial contract services | $6,844 | $7,824 | ($980) | -13% | | Direct hire placement services | $10,630 | $12,047 | ($1,417) | -12% | | Consolidated net revenues | $80,007 | $82,476 | ($2,469) | -3% | - Excluding $3.16 million in revenue from non-recurring COVID-19 response projects in the prior year, professional contract services revenue would have increased by 5% for the six-month period[82] - Net income was $1.3 million compared to $17.8 million in the prior-year period, with the significant decrease primarily due to a $16.8 million gain from the extinguishment of PPP loans and a $2.15 million goodwill impairment charge recorded in the six months ended March 31, 2022[98] Liquidity and Capital Resources | Liquidity Position (in thousands) | March 31, 2023 | September 30, 2022 | | :--- | :--- | :--- | | Cash | $20,099 | $18,848 | | Working Capital | $29,928 | $26,643 | - The company had no outstanding borrowings on its CIT credit facility and approximately $13.3 million in availability as of March 31, 2023[104] - On April 27, 2023, the Board of Directors approved a share repurchase program authorizing the purchase of up to $20 million of the company's common stock through December 31, 2023[105] Quantitative and Qualitative Disclosures About Market Risk The company states that this item is not applicable, indicating no material market risk disclosures are required for the period - Not applicable[108] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2023, with no material changes to internal control over financial reporting during the period - Based on an evaluation as of March 31, 2023, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[109] - No changes in internal control over financial reporting occurred during the six-month period that have materially affected, or are reasonably likely to materially affect, these controls[110] PART II. OTHER INFORMATION Legal Proceedings The company reports no new significant legal proceedings - None[111] Risk Factors The company refers to the risk factors in its 2022 Form 10-K and adds a new risk concerning financial challenges and depositor confidence in the banking industry, disclosing its mitigation strategy of diversifying cash deposits across multiple FDIC-insured institutions through a specialized brokerage program to stay within insurance limits - A new risk factor was added regarding potential instability in the banking industry following recent bank failures[113] - To mitigate this risk, the company has taken measures to diversify its deposits, including depositing $13 million of its excess cash into a specialized brokerage program that allocates funds among multiple FDIC-insured banks to keep balances below the $250,000 insurance limit at each institution since March 31, 2023[113] Unregistered Sales of Equity Securities and Use of Proceeds The company indicates that this item is not required - Not required[114] Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[115] Other Information The company reports no other information - None[118] Exhibits This section lists the exhibits filed with the Form 10-Q, including amended by-laws, new employment agreements for executives, a form of indemnity agreement, and required officer certifications - The report includes several filed exhibits, such as new employment agreements for Derek Dewan (CEO), Kim Thorpe (CFO), and Alex Stuckey, all dated April 27, 2023[118][120]