Q3 2024 GEE Group Inc Earnings Call
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Speaker Change: Hello and welcome to the GE Group Fiscal 2024 third quarter and year-to-date
Speaker Change: and did June 30th, 2024, earnings and update webcast conference call.
Speaker Change: I'm Derek Dewan, Chairman and Chief Executive Officer of GE Group.
Speaker Change: I will be hosting today's call. Joining me is a co-presenter is Kim Thorpe, our Senior Vice President and Chief Financial Officer. Thank you for joining us today. It is our pleasure to share with you GE Groups.
Speaker Change: Results for the fiscal 2024-3rd quarter in year-to-date period and in June 30th, 2024 and provide you with our outlook for the remainder of the 2024 fiscal year in the foreseeable future.
Speaker Change: Some comments Kim and I will make may be considered forward-looking including predictions, estimates, expectations and other statements about our future performance.
Speaker Change: These represent our current judgments of what the future holds.
Speaker Change: Intersubject to recent uncertainties that actual results may differ materially from our forward-looking statements.
Speaker Change: These risks and uncertainties are described below under the Caption Forward-looking Statements Safe Harbor and in Wednesday's earnings press release in our most recent form, 10Q, 10K, and other SEC filings under the Captions Cautionary Statement regarding.
Speaker Change: Ford Looking Statements and Ford Looking Statements Safe Harbor. We assume no obligations to update Statements made on today's call.
Speaker Change: Throughout this presentation, we will refer to periods being presented as this quarter or the quarter.
Speaker Change: or this year-to-date, or the year-to-date, which refer to the three months or nine-month periods and did June 30, 2024 respectively.
Speaker Change: Likewise, when we refer to the prior year quarter or prior year-to-date, we are referring to the comparable prior three month periods or nine month periods and the June 30th, 2023 respectively.
Speaker Change: when we refer to the prior sequential quarter.
Speaker Change: We are referring to the three months ended March 31, 2024.
Speaker Change: During this presentation, we also will talk about some non-GAP financial measures, reconciliations and explanations of the non-GAP measures we will address today are included in the earnings press release.
Speaker Change: Our presentation of financial amounts in related items including growth rates, margins and trend metrics around it or based upon rounded amounts.
Speaker Change: for purposes of this call and all amounts percentages and related items presented or approximations accordingly for your convenience are prepared remarks for today's call or available in the investor center of our website.
Speaker Change: www.gegroup.com. Now on to today's prepared remarks.
Speaker Change: In fiscal 2024, we have encountered and continue to face very difficult and challenging conditions.
Speaker Change: in the hiring environment for our staffing services, stemming from macroeconomic uncertainty.
Speaker Change: Interest rate volatility and inflation leading to less robust economy and a slowdown in the labor market. These conditions have produced near universal cooling effect on U.S. employment.
Speaker Change: including businesses use of contingent labor and the hiring of full-time personnel.
Speaker Change: As a brief reminder, the demand environment for our services as well as our industry peers began to soften in the latter part of calendar 2023 following a robust hiring of both contract labor and permanent employees.
Speaker Change: in calendar of 2021 and 2022, much of which was attributable to a post-COVID-19 bounce.
Speaker Change: Since then,
Speaker Change: Many client initiatives such as IT projects and corporate expansion activities requiring additional labor in general have been put on hold instead many businesses who we serve have implemented and proceeded with layoffs and hiring freezes.
Speaker Change: These conditions have continued to negatively impact job orders for both temporary help and direct higher placements.
Speaker Change: Thus, our financial results for the 2024 fiscal 3rd quarter and year-to-date end of June 30th, 2024 have been impacted by these conditions.
Speaker Change: Consolidated revenues were 29.5 million for the quarter at 88.1 million year-to-date [inaudible]
Speaker Change: Gross profit and gross margin were 9.6 million and 32.6% respectively for the quarter and 28.1 million and 31.9% respectively year-to-date.
Speaker Change: and solidated non-gap-adjusted EBITDA was a negative 400,000 for the quarter and a negative 1.2 million year-to-date.
Speaker Change: We reported a net loss of 19.3 million, or 18 cents.
Speaker Change: for Deluted Chair for the Quarter and a net loss of 21.8 million or 20 cents for Deluted Chair year-to-date.
Speaker Change: Due to the current and anticipated near-term macroeconomic conditions impacting the demand for our services we assessed our intangible assets in good welders quarter and have prudently taken
Speaker Change: Non-cash impairment charges that account for the substantial portion of our net losses for the quarter and year-to-date.
Speaker Change: We are by no means operating under any sort of weight and sea posture, and we are taking aggressive actions to improve our financial results, both short-term and long-term.
Speaker Change: As recently announced, we are taking this opportunity to ramp up our M&A activities and at the same time streamline our operations, while taking out an estimated $3 million in annual SGA DNA cost in the process.
Speaker Change: Additionally, we will migrate and integrate further our remaining legacy front and back off the systems into singular cloud-based platforms.
Speaker Change: We have resources to complete this process over the next 12 to 18 months, and anticipate we will further achieve economies of scale and be positioned to accelerate and integrate future accretive acquisitions more gently.
Speaker Change: In addition to these near-term initiatives, we're working closely with our frontline leaders in the field across all verticals to help them continue to aggressively pursue new business as well as opportunities to grow and expand client revenues.
Speaker Change: We are seeing some positive results. When an anticipated recovery does occur in the future, I am very confident we are positioned to meet the increased demand from existing customers and win new business.
Speaker Change: I am also happy to report that we are now well underway, formulating and executing on our recently enhanced strategic plans, which include making prudent investments to grow both organically and through mergers and acquisitions.
Speaker Change: At the same time, Rest assured that we will always manage our business prudently maintaining a solid cast position with available attractive financing.
Speaker Change: With regard to M&A, we are in contact with several potential strategic acquisition targets.
Speaker Change: and expect to complete a creative acquisitions within the remainder of this calendar year and in fiscal 2025. As you know, we all share references on December 31st.
Speaker Change: 2023, having repurchased just over 5% of our outstanding shares as of the beginning of the program.
Speaker Change: Chair Reportuses always will be considered as an alternative component of our capital allocation strategy and a bona fide alternative use of the next best capital in the future.
Speaker Change: Considered prudent.
Speaker Change: Before I turn it over to Kim, I want to reassure everyone that we will successfully manage through these challenges outlined previously and restore growth and profitability as quickly as possible.
Speaker Change: GE Group has a strong balance sheet with substantial liquidity in the form of cash and borrowing capacity. The company is well positioned to grow internally and be acquisitive.
Kim Thorpe: We also continue to believe that our stock is undervalued and especially so based upon recent trading at levels.
Kim Thorpe: Very near and even slightly below tangible book value.
Kim Thorpe: Also, only a relatively small portion of our float is actually trading at these levels. Further evidence that there is a good opportunity for upward movement in the share price. And once we are able to gain...
Kim Thorpe: and operate in a more normal economic and labor conditions improve. Management and our Board of Directors share the primary goal of restoring and growing and shareholder value.
Speaker Change: Finally, I once again wish to thank a wonderful dedicated employees and associates. They work extremely hard every day to ensure that our clients get the very best service.
Kim Thorpe: They are a key factor in our prior achievements and the most important driver of our company's future success.
Kim Thorpe: At this time, I'll turn the call over to our senior vice president and chief financial officer, Kim Thorpe, who will further elaborate on our fiscal 2024 third and year-to-date results.
Kim Thorpe: Thank you, Derek. You're good morning.
Kim Thorpe: As Derek reported, consolidated revenues for the quarter and year-to-date were $29.5 million and $88.1 million.
Kim Thorpe: Down 23% and 25% respectively from the comparable prior year periods revenues for the quarter were up 1.4 million dollars or 5% as compared with those for the prior sequential quarter.
Kim Thorpe: Professional and industrial contract staffing services revenues for the quarter were $26.2 million.
Kim Thorpe: Down 21% as compared to the prior year quarter. Professional and industrial contract staffing services revenue is here today.
Speaker Change: We're $79.23 million down 22% as compared with the prior year of the day.
Kim Thorpe: Professional and industrial contract staffing services revenues.
Kim Thorpe: for the quarter increased 600,000 or 3% as compared with the prior sequential quarter.
Kim Thorpe: Professional Contract Services Revenue, which represents 91% of all contract.
Kim Thorpe: Services Revenue and 81% of total revenue decreased $6 million or 20% of this quarter is compared with the prior quarter, prior year quarter.
Kim Thorpe: Year-to-day professional contract services revenue represented 91% of all contract services revenue and 82% of total revenues and decreased $20.4 million or 22% as compared with the prior to year-to-day.
Kim Thorpe: Industrial Contract Services Revenue, which represents 9% of all contract services revenue and 8% of all revenue decreased $800,000 or 24% this quarter is compared with the prior year quarter.
Kim Thorpe: Year-to-date industrial contract services revenue represented 9% of all contract services revenue and 8% of total revenues and decreased $2.7 million or 27% as compared with the prior year-to-date.
Kim Thorpe: Professional contract services revenue increased $600,000 again or 3% and industrial contract services revenue decreased $50,000 or 2% as compared with the prior sequential quarter.
Kim Thorpe: Direct higher revenues for the quarter were $3.3 million down 37% as compared with the prior year quarter and were 8.8 million dollars year to date down 44% as compared with the prior year to date.
Kim Thorpe: Direct higher revenues were up $800,000 on 34% as compared with the prior Sequential Court.
Speaker Change: Our top line performance was directly impacted by the difficult economic and labor market conditions facing us and the staffing industry reference by Derek in his opening remarks.
Speaker Change: Gross Profit for the quarter was $9.6 million down 30% as compared with the prior year quartered, gross profit, gross profit year-to-date was $28.1 million, down 32% as compared with the prior year-to-date, gross profit.
Speaker Change: Our overall gross margins were 32.6% and 35.8% for the quarter and year-to-date respectively. The decreases in gross profit and gross margin are mainly attributable to the decline in direct higher revenue.
Speaker Change: which has 100% gross margin, relative to tele-revenue and to some spread and commit pressure and also experience in our contract services businesses.
Speaker Change: Our Professional Contract Services Gross Margin was 25%
Speaker Change: for the quarter compared to 26.5% for the prior year quarter, a decline of 150 basis points.
Speaker Change: The gross margin for professional contract services was 25.2% year-to-date as compared with 25.8% for the prior year of the day at a 60 basis point.
Speaker Change: The decrease in professional contract services gross margin is due in part.
Speaker Change: to increase in contractor pay and other employment costs associated with the recent rise in inflation in combination with more competition for orders and candidates resulting in spread compression.
Speaker Change: Our gross profit and gross margin for the quarter were up $800,000 and 130 basis points respectively as compared with those of the prior sequential quarter.
Speaker Change: Our industrial contract services gross margin was 15.2% for the quarter compared with 17.7% for the prior year quarter, which was a decline of 250 basis points.
Speaker Change: In addition to fewer job orders, we continue to face challenges with our industrial business including sourcing and recruiting qualified candidates, as well as increase competition resulting in spread compression.
Speaker Change: Selling Gerald in administrative expenses or SGNA for the quarter was $10.2 million down 13% of us compared with the prior year quarter.
Speaker Change: SG&A expenses year-to-date were $30.8 million down 15% as compared with the prior year
Speaker Change: S-GNA expenses were 34.6% of revenues for the quarter, compared with 30.8% for the prior year quarter, and with 35% of revenues year-to-day as compared with 30.7% for the prior year-to-day.
Speaker Change: The increase in SGNA relative to revenue is mainly attributable to our fixed cost, including personnel related expenses occupancy cost.
Speaker Change: Software subscriptions for applicant sourcing and tracking in others which became higher proportionately relative to lower revenues and to a lesser extent certain non-recurring expenses not associated with the core expenses.
Derek Dewan: As Derek mentioned,
Derek Dewan: Management began taking actions this quarter to streamline operations and in the process to reduce and eliminate $3 million of our annual SGNA expenses.
Derek Dewan: The initial $1.6 million of these savings comprised of personnel, occupancy, and job board related costs and expenses is in place and will be followed shortly by an additional reduction in annual cost of approximately $1.4 million.
Derek Dewan: We routinely monitor our costs and expenses and take actions.
Derek Dewan: and we're necessary to avoid unnecessary costs.
Speaker Change: and to preserve cash flow while facing and balancing our needs to maintain quality service to our clients and preparedness for when the business environment improves. Of course, taking care of our employees is paramount to the success of GEE Group.
Speaker Change: Another key aspect of our plans to streamline operations that Derek spoke of, it is opening remarks, is to mitigate and integrate our remaining legacy front and back off assistance onto singular cloud-based platforms.
Derek Dewan: The company has the financial means to do this and expects to complete this task in the next twelve to eighteen months.
Derek Dewan: We anticipate financial and operational returns in terms of providing the means to accelerate and integrate future accretive acquisitions more efficiently and achieve economy as of scale more rapidly.
Speaker Change: We reported the net loss for the quarter of 19.3 million dollars or 18 cents for diluted share down 27.2 million dollars. Just compare with net income a 7.9 million dollars or 7 cents for diluted share for the prior year quarter.
Speaker Change: Our net loss year of the day was $21.8 million or $0.20 for a diluted share down $31 million that's compared with net income at $9.2 million or $0.8 for a diluted share for the prior year of the day.
Speaker Change: Adjusted net income, which is a non-gap financial measure for the quarter, was negative $3.4 million down $11.9 million as compared with adjusted net income of $8.1 million for the prior year quarter.
Speaker Change: Our year-to-day adjusted net income was 5.4 million dollars down 15.4 million dollars as compared with adjusted net income of 10 million dollars for the prior year today.
Speaker Change: The main drivers of the crimes in our net income resulting in our large net loss for the quarter and the year-to-date were the $20.5 million in non-cash impairment charges.
Speaker Change: as well as the declines and orders and revenues we've discussed and in addition the reversal of the valuation allowance or the former valuation allowance on our deferred tax asset in the prior year quarter and prior year of the day.
Speaker Change: Even now, which is a non-gap financial measure for the quarter, was a negative $600,000 down $2.5 million that's compared with $1.9 million dollars positive for the prior year
Speaker Change: Year-to-day EBITDA was negative $2.7 million.
Speaker Change: down $7.7 million as compared with the $5 million.
Speaker Change: for the prior year of the day. Adjusted even on which also is a non-gap financial manager for the quarter was made of $400,000 down $2.5 million as compared with $2.1 million for the prior quarter.
Speaker Change: Sorry, our year-to-date adjusted video was negative $1.2 million down $7 million as compared to $5.8 million for the prior year today.
Speaker Change: Again, the main drivers of the decline in EBITDA and adjusted EBITDA for the quarter and your today are the declines and orders and revenues as we've discussed.
Speaker Change: Our current or working capital ratio as of June 30, 2024 was 4.1 to 1, up from 3.9 to 1 and March 31, 2024, and up from 3.6 to 1 as of September 30, 2023.
Speaker Change: We reported $1.1 million in negative cash flow from operating activities for the year today and negative free cash flow, which is an on-gap financial measure of the negative year $1.2 million year-to-day.
Speaker Change: Our liquidity position as a June 30, 2024 remains very strong with $19.6 million in cash, an undrawed ABL credit facility with availability of $8.7 million.
Speaker Change: Networking Capital, including our cash of $26.9 million and no outstanding debt.
Speaker Change: Are net book value per share and net tangible book value per share? We're 79 cents.
Speaker Change: and 36 cents respectively as of June 30, 2024.
Speaker Change: Our net book value for share and net tangible book value for share were 98 cents and 36 cents respectively and of September 30, 2023. Again, the decrease in net book value for share was primarily the result of the non-cash in premium charges taking in the quarter.
Speaker Change: and as a reminder, these had no effect on our cash position tangible assets, networking capital or net tangible book value.
Speaker Change: In conclusion, while we're obviously disappointed with our results and remain somewhat cautious in our near-term outlook, we do remain optimistic for the long term and are preparing for the long term.
Speaker Change: Our management team and field leadership is experienced in managing through difficult times, such as the business disruption at the Tribunal to COVID and previous technical downturns affecting the labor market.
Speaker Change: Collectively we have demonstrated that our company can generate substantial earnings consistently on your more favorable economic conditions and a more conducive demand environment for our staffing industry.
Speaker Change: Before I turn it back over to Derek, please note that reconciliation
Speaker Change: of G Group's non-GAF financial measures discussed today with their gap counterparts can be found in the supplemental schedules included in our earnings press release.
Speaker Change: Now I'll turn the call back over to Derek Derek Dewan
Derek Dewan: Thank you, Kim.
Derek Dewan: Despite economic headwinds and staffing industry challenges impacting the demand for our services.
Derek Dewan: We are aggressively managing and preparing our business to mitigate losses, restore profitability, and be prepared for an anticipated recovery.
Speaker Change: What we hope you take away from our earnings press release and our remarks today.
Speaker Change: and from our strategic announcements last week is that we are moving aggressively not only to prepare for a more conducive and growth order.
Speaker Change: from Market, but also to restore sooner by executing on both organic and M&A growth plans and initiatives.
Speaker Change: We will continue to work hard for the benefit of our shareholders including consistently evaluating strategic uses of GE Groups capital to maximize shareholder returns.
Speaker Change: Before we pause to take your questions,
Speaker Change: I want to, again, say a special thank you to all wonderful people for the professionalism, hard work, and dedication.
Speaker Change: Now Kim and I would be happy to answer your questions.
Speaker Change: Please ask us one question and rejoin the Q with a follow up as needed. If there's time, we'll come back to you for additional questions.
Kim Thorpe: I'm sorry, I'm sorry I'm sorry I'm sorry
Kim Thorpe: [inaudible]
Kim Thorpe: [inaudible]
Kim Thorpe: Kim, will you take the first question please?
Kim Thorpe: [inaudible]
Kim Thorpe: [inaudible]
Speaker Change: We're moving to the question and answer period now.
Speaker Change: [inaudible]