Q2 2023 GEE Group Inc Earnings Call
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Speaker 2: and welcome to the GE Group Fiscal 2023 second quarter ended March 31, 2023 earnings and update webcast conference call. I'm Derek Dewan, Chairman and Chief Executive Officer of GE Group, and we'll be hosting today's call.
Speaker 2: Joining me as a co-presenter is Kim Thorpe, our Senior Vice President and Chief Financial Officer.
Speaker 2: Thank you for joining us today.
Speaker 2: It's our pleasure to share with you GE Group's results for the 2023 fiscal second quarter ended March 31.
Speaker 2: 2023 provide you with our outlook for the remainder of the 2023 fiscal year in the foreseeable future.
Speaker 2: Some comments Kim and I make today may be considered forward-looking, including predictions, estimates, expectations, and other statements about future performance.
Speaker 2: These represent our current judgments, what the future holds, and are subject to risks and uncertainties that actual results may differ materially from our forward-looking statements.
Speaker 2: these risks and uncertainties.
Speaker 2: are described below under the caption Forward Looking Statements, Safe Harbor, and in Monday's earnings press release. In our most recent, Form 10Q, 10K, and other SEC filings under the captions, cautionary statements regarding forward looking statements and forward looking statements, safe harbor.
Speaker 2: We assume no obligation to update statements made on today's call.
Speaker 2: During the presentation, we also will talk about some non-GAAP financial measures.
Speaker 2: Reconciliations and explanations of the non-GAAP financial measures we will address today are included 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.
Speaker 2: For purposes of this call and all amounts, percentages, and related items presented or approximations accordingly, for your convenience, our prepared remarks for today's call are available in the investor center of our website, www.geegroup.com.
Speaker 2: We once again achieved very good results in the fiscal 2023 second quarter.
Speaker 2: beginning with consolidated revenues of $38.9 million.
Speaker 2: our consolidated gross profit and gross margins.
Speaker 2: or 13.2 million and 34 percent respectively.
Speaker 2: our consolidated non-gap adjusted EBITDA
Speaker 2: for the fiscal 2023 second quarter was $1.7 million.
Speaker 2: We achieved consolidated net income.
Speaker 2: of $700,000 or one cent per diluted share for our fiscal 2023 second quarter.
Speaker 2: As Kim will explain further, the prior year's fiscal second quarter results were well above normal due to much higher than expected demand for direct hire placement services in a significant amount of higher margin.
Speaker 2: non-recurring COVID-19.
Speaker 2: related project work. With the fiscal 2022 second quarter performance.
Speaker 2: was outstanding. The current fiscal second quarter still compares favorably, taking into account the discrete opportunities present in last year's second quarter, particularly in terms of the double-digit growth achieved in our combined professional IT contract businesses in the fiscal 2023 second quarter.
Speaker 2: Before I turn it over to Kim, I want to say thank you to our wonderful dedicated people.
Speaker 2: They work extremely hard every day to ensure that our clients get the best service.
Speaker 2: hard every day to ensure that our clients get the best service. They are the key.
Speaker 2: in our outstanding performance for GE Group in what we achieved in Fiscal 22 and so far in Fiscal 2023. We will continue to have the most important drivers for a company's future success.
Speaker 2: At this time, I'll turn the call over to our CFO , Kim Thorpe.
Speaker 2: who will further elaborate on our fiscal 2023 second quarter results. Kim.
Speaker 2: Thank you, Derek, and good morning, everyone. Once again, consolidated revenue for the fiscal 2023 second quarter was $38.9 million, which is $700,000 or 2% lower compared to fiscal 2022.
Speaker 2: 2nd quarter revenue of $39.6 million. However, as Derek mentioned, our fiscal 2022 2nd quarter included above average performance.
Speaker 2: in our direct hire placement revenue, as well as professional contract services revenue generated from COVID-19 related projects.
Speaker 3: and COVID-19 responders.
Speaker 3: Excluding the effects of the certain non-recurring COVID-19 related projects alone, which generated $835,000 and $3.2 million in professional contract services revenue in the three months and six months periods ended.
Speaker 3: March 31, 2022 respectively, professional contract services revenue remaining professional contract services revenues increased 1.6 million or 5% during the fiscal second quarter to March 31.
Speaker 3: 2023 and 3.1 million dollars or approximately 5% during the first half of fiscal 2023 over the comparable 2022 fiscal second quarter and first half respectively. Professional and industrial.
Speaker 3: contract staffing revenues for fiscal 2023 second quarter were $34 million, which is $231,000 or 1% higher as compared with fiscal 2022's second quarter contract staffing service revenues. fiscal contract services revenue.
Speaker 3: which represents 91% of all contract services revenue and 79% of consolidated revenue increased $1.6 million or 5% quarter-rever quarter. Again, before the effects of or excluding the effects of the non-recurring COVID-19 related project revenue. Thank you.
Speaker 3: The brake spot.
Speaker 3: And our contract services revenue growth was our professional IT contract services revenue, which grew 11% quarter-ever quarter, and is up 13% in the first half of fiscal 2023 over fiscal 2022's first half. IT contract services has grown to represent 60%. And our contract services have grown to represent 60% in the first half of fiscal 2020.
Speaker 3: of all professional services contract revenue in the March quarter, IT direct hiring contract services revenue represented 50% of consolidated revenue and is our highest priority growth specialty.
Speaker 3: The increase in our quarter to quarter professional contract staffing services revenues and then our I professional IT contract staffing services sector in particular are the result of increasing demand and our ability to adapt and meet the demand in the new
Speaker 3: post COVID-19 US economic and workforce environments. As I said last quarter, two recent indicators.
Speaker 3: recent outstanding jobs reports, and in contrast to that, recent significant layoffs of IT professionals by larger employers.
Speaker 3: Also, each are positive indicators for the remainder of Fiscal 2023. Rising employment suggests increasing demand for services while IT corporate downsizing actions means more IT candidates available to fill that demand.
Speaker 3: Direct counter placement revenue for the fiscal 2023 second quarter was $4.9 million compared with fiscal 2022 second quarter revenue of $5.9 million.
Speaker 3: As indicated in our release, fiscal 2022 again, was a record high year for direct higher placement services for us and our March 2022 quarter set a record as our highest March quarter ever for direct higher placement services revenue.
Speaker 3: our direct hire placement revenue for the first half of 2023 was $10.6 million.
Speaker 3: Although not as robust as 2022's performance, we are pleased with this level of direct higher placement production, and despite the macroeconomic environment and potential headwinds we all were aware of, we remain cautiously optimistic.
Speaker 3: about our overall direct hire placement revenue potential for the remainder of fiscal 2023. Industrial staffing revenues were $3.2 million and represented 8% of total revenue for fiscal 2023's second quarter into March 31, 2023. We continue to experience growth challenges in our light industrial markets.
Speaker 3: which we attribute to the continued presence of some COVID-19 and unemployment relief program funds available to workers in Ohio, which tends to cause them not to seek employment.
Speaker 3: recent inflation also has led us to increase hourly wages and benefits for contingent workers in our light industrial business in Ohio.
Speaker 3: We believe that it found that this motivates some of our light industrial tent workers to seek to moderate or reduce their work hours in order to balance income streams in favor of preserving their subsidized benefits, which they may lose if their income is too high.
Speaker 3: This in turn tends to increase competition among staffing firms in Ohio, in particular for laborers to fill temporary staffing jobs. We are actively introducing new sales and recruiting programs to attract candidates and restore growth in our industrial business.
Speaker 3: as well as implementing price increases where possible to mitigate the impact of inflation.
Speaker 3: Grace Profit for fiscal 2023 second quarter was $13.22 million compared with Grace Profit of $14.5 million in the fiscal 2022 second quarter.
Speaker 3: Our overall gross margins were 34% and 36.6% for fiscal 2023 and 2022 second quarters respectively.
Speaker 3: The declines in growth profit and growth margin, again, are mainly attributable to lower direct higher placement business, which has 100% growth margin.
Speaker 3: On the contract side, increases in contractor pay associated with recent inflation also have resulted in some spread compression within our professional services business.
Speaker 3: The company in response has stepped up counter inflationary increases in markups, bill rates, and spreads in order to address this recent margin compression.
Speaker 3: However, despite lower quarter...
Speaker 3: Over quarter gross profit and gross margins, our current margins remain high and everybody.
Speaker 3: compared with our peer group. So in general, I am administrative expenses, SG&A for fiscal 2023 second quarter ended March 31, 2023 decreased by $523,000 or 4% compared with fiscal 2022 second quarter.
Speaker 3: S-G-N-A expenses were 30% of revenue in the 2023 second quarter, compared with 31% for the second quarter of fiscal 2022.
Speaker 3: In late February and March of 2023, the company implemented certain cost reductions with estimated annual savings of approximately $4 million. The company monitors operating costs, including the impacts of inflation, with a view towards identifying and taking advantage of potential cost reductions.
Speaker 3: on a routine basis. In addition, we expect the implementation of the counter-inflationary measures I mentioned a minute ago, which include increases in markups, fill rates, and spreads.
Speaker 3: and other targeted cost reductions to help improve our expense ratios and margins going forward.
Speaker 3: We achieved net income in fiscal 2023 second quarter of $700,000 are of one cent per diluted share as compared to $1.1 million are one cent per diluted share for fiscal 2022 second quarter. Adjusted net income.
Speaker 3: which is a non-GAP measure for fiscal 2023 second quarter, which 849,000 are one-cent per deluded share compared with $2.2 million or two-cent per deluded share for the fiscal 2022 second quarter.
Speaker 3: Adjusted even of which is an on-game measure for fiscal 2023 second quarter was 1.7 million as compared with 3.4 million for the fiscal 2022 second quarter.
Speaker 3: Our current or working capital ratio at March 31, 2023 was a healthy 3.6 to 1, 90 basis points from 2.7 to 1 at September 30, 2022. Three cash flow from operating activities for the six months ended March 31, 2023 was $1.4 million.
Speaker 3: which included the effects of the second and final installment of deferred FICA taxes of $1.8 million that were deferred under the CARES Act and increased cash bonuses of $1.2 million in the first quarter of this fiscal year following record financial performance in fiscal 2022, both these which were paid in December of 2020.
Speaker 3: Our liquidity position is strong. We have no outstanding debt. Our book value for share was 90 cents at March 31, 2023. And our tangible net book value for share was 28 cents. Both up nicely set September 30, 2022. And now we will turn the??otation.
Speaker 3: Finally, as far as capital allocation strategy, our board of directors has authorized a share repurchase program whereby the company can, subject to certain limitations, repurchase up to $20 million in common stock in the open market.
Speaker 3: between now and December 31, 2023. We would expect to commence the re-purchase of shares in the near term following our earnings release and conclusion of the related blackout period around this release.
Speaker 3: To conclude, we remain positive in our outlook for fiscal 2023 with appropriate consideration for lingering uncertainty regarding the overall economy. Before I turn it back over to Derek, please note that reconciliation of our non- GAAP financial measures discussed today with their gap counterparts can be found in the supplemental schedules.
Speaker 2: Included in our earnings release and so with that now, I'll turn it back over to Derek. Thank you, Kim. The fiscal 2023 2nd quarter marked our 7th consecutive quarter of strong operating performance since de-leveraging the company.
Speaker 2: Having consistently achieved higher margins and free cash flow for the last seven quarters, we continue to build a positive track record as well as positive momentum for the future. As of March 31, 2023 the company has no debt and over 20 million in cash with 13.3 million in availability.
Speaker 2: under its bank ABL facility. GE Group's prospects today for future profitable growth continue to expand and improve. Despite macroeconomic headwinds and unforeseen events, we believe we can continue to deliver solid results in fiscal year 2023 and beyond and increase shareholder value. Before we pause to take your questions, I want to again say a special thank you to all of our wonderful people.
Speaker 2: for their professionalism, hard work, and dedication. Without them, we could not have accomplished all the good things we have shared today. Now, Kim and I would be happy to answer questions. Please ask one question and rejoin the queue with a follow-up. If you have any further questions, if there's time, we'll come back to you.
Speaker 2: Without them, we could not have accomplished all the good things we have shared today. Now, Kim and I would be happy to answer questions. Please ask one question and rejoin the queue with a follow-up if you have any further questions. If there's time, we'll come back to you. Thank you.
Speaker 3: Okay, we have our, Derek, are you on? Yep.
Speaker 2: I'm our first, first, yeah, first question.
Speaker 2: That's a common question I was trying to aggregate similar questions.
Speaker 2: We announced a 20 million stock repurchase plan.
Speaker 2: announced a 20 million stock repurchase plan through 1231.
Speaker 2: of 23 this year. These stock purchase plan is open for open market transactions and we do not.
Speaker 2: Have not bought any shares yet because we want to report our numbers first because we are in a blackout periods. But the share buyback program will commence. After these earnings have been digested, which we reported, so probably the latter part of this week is we'll begin the program. And we'll be judicious in how we execute it.
Speaker 2: But we are absolutely pursuing the plan.
Speaker 2: as described previously.
Speaker 2: And it's not an end all. Fortunately, we're able to generate significant cash.
Speaker 2: So we plan on keeping our capital allocation program in place and continuing forward with it. Another question that came up, Kim, was are SG&A cuts.
Speaker 2: if you'd like to comment on that, and also the impact on the next several quarters results.
Speaker 3: Yeah, thank you, Derek. Yes, the predominant source of the cost cuts.
Speaker 3: was really an acceleration of a reduction in force, which was comprised of basically performers who were not meeting their minimum commitments.
Speaker 3: And that was probably 80% of the number, 85% of the number. And as far as the margins go, the number is calculated based on their actual current pay, including in some cases some commission.
Speaker 3: The effect impact on the margin is. We expect it to have about a 2% increase. In our, in our, even a margins. This fiscal year, of course, that's going to depend on.
Speaker 3: volume during the rest of the year. And of course, we're all cautiously optimistic about the economy and the environment. However, assuming everything goes as planned, it should provide us about a 2% increase in the even margin this year, which would bring our even margin somewhere between 6% and 7% on the high end.
Speaker 3: And then going forward, we believe that margin would move up somewhere between 7 and 8 percent in the near term based on the crosscuts.
Speaker 3: forward we believe that margin would move up somewhere between 7 and 8 percent in the near term based on the cost cuts. Okay, Kim, thank you.
Speaker 2: Another question revolved around acquisitions or potential acquisitions.
Speaker 2: as we have stated previously to the extent that we have availability.
Speaker 2: of cash and the company's performing well will augment our capital allocation strategy with strategic acquisitions but only if
Speaker 2: the price point is appropriate and would be accretive to earnings. So the multiples have to be in line with where we're trading.
Speaker 2: And that can be accomplished with synergies and so forth. However, fortunately, we're able to execute a buyback program.
Speaker 2: and also be opportunistic on strategic acquisitions at the appropriate time, particularly some tuck-ins that are less risky, easier to integrate, and so forth.
Speaker 2: Another question, Kim, was what do we, what's our outlook for the rest of the year house firm placement?
Speaker 2: I'd like you to comment and then I'll fill in after that. Okay.
Speaker 3: Right now, perm placement, again, they're cautiously optimistic that trends of roosting now continue through this quarter and our last quarter. We expect to report permanent placements that are on par with what we have seen in
Speaker 3: With our higher years before the pandemic, which I believe was between 2022 Million. So, and you can, you can simply analyze the 10.6 that we've done here today to get to there. That's conservative, but if the economy does heat up, it could be a little better than that.
Speaker 3: years before the pandemic which I believe was between 2022 million so and you can you can simply analyze the 10.6 that we've done year-to-date and get to there that's conservative assuming if the economy does heat up it could be a little better than that. Derek?
Speaker 2: Okay, and let me add this. 2022 was an aberration in terms of the demand.
Speaker 2: throughout the industry for direct hire placement or permanent placement. And that was a post-COVID bounce.
Speaker 2: Fortunately, we capitalized on it.
Speaker 2: And this year we expect a more normalized version of it. However, we are continuing to do the placements.
Speaker 2: successfully and our contract business is picked up fortunately which will help make up for the differential and perm.
Speaker 2: Next question Kim deals with again the buyback question.
Speaker 2: I cover that pretty good, but I should say that fortunately our cash flow is significant and we're able to continue that program. The question was, are you going to spend all your money at one time or how quickly? I think we'll be judicious in our execution, but we think the stock's a good value.
Speaker 2: we are definitely pursuing our program.
Speaker 2: our program. Next question.
Speaker 2: Again, your SG&A cuts, how quickly will they be affecting earnings immediately?
Speaker 2: They already are starting to...
Speaker 2: be reflected there. Let's see what else we got. Okay.
Speaker 2: Again, the questions are pretty much repetitive.
Speaker 2: Yes, the cuts were done in March. They were fully executed. Okay? So, if they're taking out their... We're still looking for other ways to cut costs.
Speaker 2: be it job boards cost, be it technology cost, and otherwise. So we're seeing other opportunities and we're pushing those costs out.
Speaker 2: to the extent that we can. Same thing with lease renewals and so forth because of virtual working and remote working.
Speaker 2: Same thing with lease renewals and so forth because of virtual working and remote working.
Speaker 2: We'll see a bumpy road ahead economically, it appears, but our crystal ball is no better than anybody else's, but for sure we will be able to...
Speaker 2: deliver good results and we'll be very judicious in how we spend our money.
Speaker 2: And we will also execute our capital allocation strategy. Kim, do you have anything to add at this point?
Speaker 3: No, I think you covered everything well. I would just remind everybody that we're.
Speaker 3: I'm looking through some of the questions and there's a number of questions about acquisitions and what are your plans. And it seems like there's some concern, but let me just say that the company that you're on the phone with right now got here through acquisitions. And the founders, Derek and Alex.
Speaker 3: Put this company together in 2015. There was a 40M dollar public company that was about to be delisted. We're here in the 8th yard. In fact, our 8th birthday. Just past this where our revenues are 4X.
Speaker 3: Our profit is up 175% on a compound annual growth rate. And we have every, we're going to execute a multifaceted strategy. As Derek said, there'll be some stock buybacks.
Speaker 3: But we're also going to continue to look for acquisitions that make sense.
Speaker 2: Let me add to that blackout periods are set by us through our
Speaker 2: that blackout periods are set by us through our also through council.
Speaker 2: However, those will be related to earnings blackout periods or trading blackouts.
Speaker 2: But other than the normalized blackouts, we don't expect any unusual periods. And if we do, we'll let people know if that pops up. But we plan on executing the program fairly soon here. Earnings get suggested, so I say the latter part of this week for sure.
Speaker 2: and we will be judicious in the approach. The other thing that came up, did you consider that auction and a tender offer? We sure did, but it was, we felt, our board felt, and we felt, and our advisors felt, that it was prudent to execute an open market strategy because the status of the economy and so forth.
Speaker 2: in terms of spending all our cash immediately might not be the optimal thing to do at this point.
Speaker 2: rest assured that those are always considered in our deliberations regarding capital allocation. I think that pretty much covers everything today. If you have follow-up, just let us know. Thanks for joining us and that'll conclude our call.