Q2 2025 GEE Group Inc Earnings Call
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Speaker Change: Hello, and welcome to the G Group fiscal 2025 second quarter and first half ended March 31.
Unknown Executive: Hello, and welcome to the GEE Group fiscal 2025 second quarter and first half ended March 31 2025 earnings and update webcast conference call.
Speaker Change: 2025 earnings update webcast conference call.
Derek Dewan: I'm Derek Dewan, Chairman and Chief Executive Officer of GEE Group. I will be hosting today's call. Joining me as a co-presenter is Kim Thorpe. Senior Vice President and Chief Financial Officer. Thank you for joining us today. It is our pleasure to share with you GEE Group's results for the fiscal 2025 second quarter and first half ended March 31, 2025, and provide you with our outlook for the remaining fiscal year 2025. and the foreseeable future. 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: I'm Derek to one chairman and Chief Executive Officer of G Group.
Speaker Change: We will be hosting today's call joining me as a co presenter it's Kevin Thorpe.
Speaker Change: And in your Vice President and Chief Financial Officer.
Speaker Change: Thank you for joining us today.
Speaker Change: It is our pleasure to share with you.
Speaker Change: The group's results for the fiscal 2025 second quarter.
Speaker Change: And first half ended March 31, 2025, and provide you with our outlook for the remaining fiscal year 2025.
Speaker Change: And the foreseeable future.
Speaker Change: Some comments, Kim and I will make maybe considered forward looking including predictions estimates expectations and other statements about our future performance.
Derek Dewan: These represent our current judgment of what the future holds and are subject to risks and uncertainties. that actual results may differ materially from our forward-looking statement. These risks and uncertainties are described below under the caption. Board Looking Statements, Safe Harbor, and in Thursday's earnings press release in our most recent forms 10-Q, 10-K, and other SEC filings under the CAHPS Cautionary statement regarding forward-looking statements and forward-looking statements. Safe harbor. We assume no obligation to update statements made on today's call. Throughout this presentation, we will refer to the periods being presented as this quarter or the quarter, or this year to date, or the year to date, which refers to the three-month or six-month periods ended March 31, 2025, respectively.
Speaker Change: These represent our current judgment of what the future holds and are subject to risks and uncertainties.
Speaker Change: Actual results may differ materially from our forward looking statements.
Speaker Change: These risks and uncertainties are described below under the caption forward looking statement Safe Harbor and in Thursdays earnings press release, and our most recent forms 10-Q.
Speaker Change: 10-K.
Speaker Change: And other SEC filings under the captions.
Speaker Change: Cautionary statement regarding forward looking statements and forward looking statements Safe Harbor.
Speaker Change: We assume no obligation to update statements made on today's call.
Speaker Change: Throughout this presentation, we will refer to the periods being presented as this quarter or that quarter.
Speaker Change: Or this year to date or the year to date, which refers to the three months or six months periods ended March 31 2025.
Speaker Change: Actively.
Derek Dewan: Likewise, when we refer to the prior year quarter or prior year to date, We are referring to the comparable prior three-month or six-month periods ended March 31, 2024, respectively. During this presentation, we will also talk about some non-GAAP financial measures. 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 for purposes of this call, and all amounts, percentages, and related items presented are 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 Change: Likewise, when we referred to the prior year quarter, our prior year to date.
Speaker Change: We are referring to the comparable prior three month or six month periods ended March 31 2024, respectively.
Speaker Change: During this presentation. We will also talk about some non-GAAP financial measures.
Speaker Change: Reconciliations and explanations of the non-GAAP financial measures. We will address today are included in the earnings press release.
Speaker Change: Our presentation of financial amounts related items, including growth rates margins and tread metrics.
Speaker Change: Rounded or based upon rounded amounts for purposes of this call and all amounts or percentages it related items presented core approximations accordingly.
Speaker Change: For your convenience our prepared remarks for today's call.
Speaker Change: Are available in the Investor Center of our website Www Dot G E group Dot com.
Derek Dewan: Now on to today's prepared remark. Beginning in the second half of 2023, throughout 2024, and so far in 2025, we have encountered and continue to face very difficult and challenging conditions in the hiring environment for our staffing services. These have stemmed from what is now acknowledged as overhiring that took place in 2021 and 2022 in the immediate aftermath of the pandemic and the macroeconomic uncertainty, interest rate volatility, and inflation that followed. These conditions have produced a near-universal cooling effect on U.S. employment, including businesses' use of contingent labor and the hiring of full-time personnel. Since the latter part of 2023, many client initiatives, such as IT projects and corporate expansion activities requiring additional labor in general, have been put on hold.
Speaker Change: Now on to today's prepared remarks.
Speaker Change: Beginning in the second half of 2023 throughout 2024, and so far in 2025.
Speaker Change: We've encountered and continue to face very difficult and challenging conditions in the hiring environment for our staffing services.
Speaker Change: Stemmed from what is now acknowledge as over hiring that took place in 2021 and 2022 in the immediate aftermath of the pandemic.
Speaker Change: Macroeconomic uncertainty interest rate volatility in inflation that followed.
Speaker Change: These conditions have produced a near universal cooling effect on U S employment, including businesses use.
Speaker Change: Contingent labor and they're hiring a full time personnel.
Speaker Change: Since the latter part of 2023, many client initiatives such as the I T projects and corporate expansion activities, requiring additional labor in general have been put on hold.
Derek Dewan: Instead, many of the businesses we serve have implemented and proceeded with layoffs and hiring freezes. and in many cases have focused on retaining their existing employees rather than adding new employees. Companies and businesses are cautiously assessing interest rates and market conditions, including recent tariff activities, to ensure their investments in technology and human capital are strategic and sustainable. Artificial Intelligence, or AI, also is gaining ground at an accelerated pace and is further complicating the HR and project planning opportunities. and risk facing virtually all companies, including consumers of our service. These conditions have continued to have a cooling effect upon job orders for both temporary help and direct hire placement.
Speaker Change: Instead, many of the businesses, we serve they are implemented and proceeded with layoffs and hiring freezes.
Speaker Change: And in many cases have focused on retaining their existing employees rather than adding new employees.
Speaker Change: Companies and businesses are cautiously assessing interest rates and market conditions, including recent tariff activities to ensure their investments in technology and human capital.
Speaker Change: Strategic and sustainable part.
Speaker Change: Artificial intelligence or AI also is gaining ground at an accelerated pace and is further complicating the HR and project planning opportunities.
Speaker Change: And risk facing virtually all companies, including consumers of our services. These conditions have continued to have a cooling effect upon job orders for both temporary help and direct hire placements.
Derek Dewan: Thus, our financial results for the 2025 fiscal second quarter and first half ended March 31, 2025, have been negatively impacted by these conditions. The company's contract and direct placement services are currently provided under the Professional Staffing Services Operating Division or SEG. We finalized our plans to sell the company's former industrial staffing services segment in the quarter and are actively negotiating the sale currently. Therefore, it has been classified as a discontinued operation as of March 31, 2025, and is excluded from the results of operations reported below, as well as in the condensed consolidated financial statements included in our quarterly report on Form 10-Q for this quarter, unless otherwise stated.
Speaker Change: Thus our financial results for the 2025 fiscal second quarter and first half ended March 31, 2025 have been negative negatively impacted by these conditions.
Speaker Change: The Companys contract in direct placement services are currently provided part of the professional staffing services operating division or segment.
Speaker Change: Finalized our plans to sell the company's former industrial staffing services segment in the quarter and are actively negotiating the sale currently.
Speaker Change: Therefore, it has been classified as a discontinued operation as of March 31, 2025, and is excluded from the results of operations reported below as well as in the condensed consolidated financial statements included in our quarterly report on Form 10-Q for this quarter unless otherwise stated.
Speaker Change: Consolidated revenues were $24 5 million for the quarter.
Derek Dewan: Consolidated revenues were $24.5 million for the quarter and $48.5 million year-to-date. Gross profits and gross margins were $8.4 million and 34.1% respectively for the quarter and $16.3 million and 33.6% respectively year-to-date. Consolidated non-gap adjusted EBITDA was negative 600,000 for the quarter, negative 900,000 year-to-date. We reported a net loss from continuing operations of $33 million. or $0.30 per diluted share for the quarter. and a net loss from continuing operations of $33.6 million or $0.31 per diluted share here today. The losses from continuing operations are primarily the result of a $22 million non-cash goodwill impairment charge and a $9.9 million non-cash charge corresponding with the establishment of a valuation allowance related to our net deferred tax assets recorded as of March 31, 2025.
Speaker Change: $48 5 million year to date.
Speaker Change: Gross profits and gross margins were $8 4 million and 34, 1%, respectively for the quarter and $16 3 million and 33, 6% respectively year to date.
Speaker Change: Consolidated non-GAAP adjusted EBITDA was negative <unk> <unk>.
Speaker Change: 600000 for the quarter negative 900000 year to date.
Speaker Change: We reported a net loss from continuing operations of 33 billion.
Speaker Change: Or <unk> 30 per diluted share for the quarter.
Speaker Change: And a net loss from continuing operations of $33 6 million or <unk> 31 cents per diluted share year to date.
Speaker Change: The losses from continuing operations are primarily the result of the $22 million non cash goodwill impairment charge and a nine point in time million dollars noncash charge corresponding with the establishment of a valuation allowance related to our net deferred tax.
Speaker Change: Assets recorded as of March 31, 2025.
Derek Dewan: Both of these non-cash charges are the result of the application of the prescribed accounting rules to the company's current and expected near-term performance in light of the current and anticipated macroeconomic conditions impacting the demand for our services and the staffing industry as a whole.
Speaker Change: Both of these noncash charges are the result of the application of the prescribed accounting rules to the company's current and expected near term performance in light of the current and anticipated macroeconomic conditions impacting the demand for our services and the staffing industry as a whole.
Derek Dewan: We are not sitting on our hands.
Speaker Change: We are not sitting on our hands.
Derek Dewan: We're taking our current situation for granted. We are working aggressively, taking actions to adjust and enhance our strategic focus. Growth plans and financial performance and results. As we announced earlier, we have ramped up our M&A activities and completed our first such transaction in the quarter and are in the process of evaluation and diligence on several others. At the same time, we are focused on continuing to streamline our core operations, significantly reducing costs and improving the productivity of our field personnel. In addition to the expense reduction and integration initiatives, which we began last fall, we have added a renewed focus on VMS and MSP source business, including the use of special offshore recruiting resources and acceleration of the integration and use of AI technology into our recruiting, sales, and other processes.
Speaker Change: We're taking our current situation for granted.
Speaker Change: We are working aggressively taking actions actions to adjust and enhance our strategic focus.
Speaker Change: Those plans and financial performance and results as we announced earlier, we have ramped up our M&A activities.
Speaker Change: And completed our first such transaction in the quarter and are in the process of evaluation and diligence on several others at the same time, we are focused on continuing to streamline our core operations significantly reducing costs and improving the productivity of our field personnel.
Speaker Change: In addition to the expense reduction and integration initiatives, which we began last fall we have added a renewed focus on Vms and MSP source business, including the use of special offshore recruiting resources and acceleration of the integration and use of AI technology into our recruiting sales.
Speaker Change: Other processes.
Derek Dewan: Importantly, we anticipate achieving additional economies of scale, improvements in our productivity, and restoring profitability as soon as possible. Our goal and expectation is to become profitable again in the latter part of 2025 or early in 2026. In addition to these near-term initiatives, we are working closely with our frontline leaders in the field across all our verticals to help them continue to aggressively pursue new business and take market share, as well as opportunities to grow and expand existing client revenue. We are beginning to realize some positive results. When anticipated recovery does occur in the future, I am very confident that we are well-positioned to meet the increased demand from existing customers and win new business.
Speaker Change: Poorly we anticipate achieving additional economies of scale improvements in our productivity and restoring profitability as soon as possible.
Speaker Change: Our goal and expectation is to become profitable again in the latter part of 2025 or early in 2026. In addition to these near term initiatives. We are working closely with our frontline leaders in the field across all our verticals to help them continue to aggressively pursue new business and take more.
Speaker Change: <unk> share as well as opportunities to grow and expand existing client revenues.
Speaker Change: We are beginning to realize some positive results when anticipated recovery does occur in the future I am very confident that we are well positioned to meet the increased demand from existing customers and win new business.
Speaker Change: As you also know we paused share repurchases at December 31, 2023, having repurchased.
Derek Dewan: As you also know, we paused share repurchases on December 31st, 2023 having repurchased just over 5% of our outstanding shares as of the beginning of the program. share repurchases always will be considered as an alternative component of our capital allocation strategy and a bona fide alternative use of excess capital in the future. If and when considered prudent, our focus on strategic accretive mergers and acquisitions will continue as well.
Speaker Change: Just over 5% of our outstanding shares as of the beginning of the program.
Speaker Change: Share repurchases always will be considered as an alternative component of our capital allocation strategy and a bonafide alternative use of excess capital in the future.
Speaker Change: If and when considered it prudent.
Speaker Change: Focus on strategic accretive mergers and acquisitions will continue as well.
Derek Dewan: Before I turn it over to Kim, I want to reassure everyone that we fully intend to successfully manage through the challenges outlined previously and restore growth and profitability as quickly as possible. GEE 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 to be acquisitive. We also continue to believe that our stock is undervalued, and especially so based upon recent trading at levels very near and even slightly below tangible book value, and that there is a good opportunity for upward movement in the share price once we are able to operate again in more normal economic and labor conditions, and continue to execute on our capital allocation strategy as well.
Kim: Before I turn it over to Kim <unk>.
Kim: I want to reassure everyone that we fully intend to successfully manage through the challenges outlined previously in.
Kim: And restore growth and profitability as quickly as possible.
Kim: G Group has a strong balance sheet with substantial liquidity in the form of cash and borrowing capacity.
Kim: Company is well positioned to grow internally and to be acquisitive. We also continue to believe that our stock is undervalued, especially so based upon recent trading levels very near that even slightly below tangible book value and that there is a good opportunity for upward movement in the share price once we are able.
Kim: To operate again.
Kim: And more normal economic and labor conditions continue to execute on our capital allocation strategy as well.
Derek Dewan: Management and our Board of Directors share and have embraced the primary objective of restoring and accelerating profitability and growing shareholder value. Finally, I once again wish to thank our wonderful, dedicated employees and associates. They work extremely hard every day to ensure that our clients get the very best service. They are a key factor in our prior achievements. and the most important driver of our company's future success.
Kim: Management, and our board of directors share and have embraced the primary objective of restoring and accelerating profitability and growing shareholder value.
Kim: Finally, once again wish to thank our wonderful dedicated employees and associates. They work extremely hard every day to ensure that our clients get the very best service. They are a key factor.
Kim: Our prior achievements.
Kim: 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 2025 second quarter and year-to-date results. Thank you, Derek, and good morning. As Derek mentioned, consolidated revenues for the quarter and year to date were $24.5 million and $48.5 million, down 4% and 10% respectively from the comparable prior period. Professional Contract Staffing Services revenues for the quarter and year today were $21.5 million and $43 billion, down 7% and 11%, respectively, from the comparable prior period. Direct Hire Placement Revenues for the quarter in the year to date were $3 million and $5.5 million, up 22% for the quarter and slightly above even as compared with the prior six month period.
Speaker Change: At this time I'll turn the call over to our senior Vice President Chief Financial Officer, Ken Thorpe, who will further elaborate on our fiscal 2025 second quarter and year to date results.
Kim: Kim.
Speaker Change: Thank you Derek and good morning.
Kim: As Gary mentioned.
Kim: Holiday to revenues for the quarter and year to date were $24 5 million $48 5 million down four.
Kim: <unk> percent and 10% respectively from the comparable prior periods professional.
Kim: Professional contract staffing services revenues for the quarter and year to date were $21 5 million and $43 million down, 7% and 11% respectively from the comparable prior periods.
Kim: Correct higher placement revenues for the quarter and the year to date were $3 million and $5 5 million.
Kim: 22% for the quarter and slightly above guidance as compared with the prior six month period.
Kim Thorpe: Our top line performance this quarter and year today has continued to be directly impacted by the difficult economic and labor market conditions facing us in the staffing industry, referenced by Derek in his opening remarks. Gross profit and gross margin for the quarter and year to date were $8.4 million and 34.1% and $16.3 million and 33.6% respectively, compared with $8.4 million and 32.8% and $17.7 million and 33% respectively.
Kim: Our top line performance this quarter and year to date has continued to be directly impacted by the difficult economic and labor market conditions facing us in the staffing industry referenced by Derek in his opening remarks.
Kim: Gross profit and gross margin for the quarter and year to date were $8 4 million.
Kim: 34, 1% and $16 $43 million and $33.
Kim: 6%, respectively, compared with $8 4 million.
Kim: 32, 8% and $17 $7 million, 33% respectively.
Kim Thorpe: compared with the prior year periods comparable. The net increases in our gross margins are primarily attributable in the quarter to the increase in the mix of direct higher placement revenues, which have 100% gross margin in relation to total revenue. Selling General and Administrative Expenses, or SG&A, for the quarter were $9.3 million, down 3% as compared with the prior year quarter. SG&A expenses year-to-date were $17.7 million, down 10%, as compared with the prior year-to-date. SG&A expenses were 38% of revenues for the quarter compared with 37.3% for the prior year quarter and were 36.6% of revenues year-to-date as compared with 36.7% for the prior year-to-date.
Kim: Compared with the prior year periods comparable.
Kim: The net increases in our gross margins are primarily attributable in the quarter to the increase in the mix of direct hire placement revenues, which have 100% gross margin in relation to total revenue.
Kim: Selling general and administrative expenses or SG&A for the quarter were $9 $3 million down 3% as compared with the prior year quarter, our SG&A expenses year to date were $17 $47 million.
Kim: Down 10%.
Kim: Compared with the prior year to day.
Kim: SG&A expenses were 38% of revenues for the quarter compared with 37, 3% for the prior year quarter and were 36, 6%.
Kim: Revenues year to date as compared with 36, 7% for the prior year today.
Kim Thorpe: are slightly higher SG&A percentages of revenue. During fiscal 2025, second quarter and year-to-date was attributable mainly to lower levels of revenue in relation to our fixed SG&A, including mainly fixed personnel-related expenses, occupancy costs, job boards, and applicant tracking system. We plan to return to profitability through an increase in revenue and by significantly lowering our SG&A expenses going forward accordingly. Our goal is to return to profitability, as Derek mentioned, in the latter part of 2025 and early to mid-2026. Our loss from continuing operations for the quarter was $33 million or $0.30 for diluted share.
Kim: Our slightly higher SG&A percentages of revenues during fiscal 2025.
Kim: Quarter and year to date was attributable mainly to lower levels of revenue in relation to our fixed SG&A, including mainly fixed personnel related expenses occupancy cost job boards and applicant tracking systems.
Kim: We plan to return to profitability through our the increase in revenue and by significantly lowering our SG&A expenses going forward accordingly.
Kim: Our goal is to return to profitability as Derek mentioned in the latter part of 2025 and early to mid 2026.
Derek: Our loss from continuing operations for the quarter was $33 million or <unk> 30 cents per diluted share.
Kim Thorpe: as compared with a net loss of $900,000 or a penny per diluted share for the prior year quarter. Loss from continuing operations year-to-date was $33.6 million or a negative 31 cents per diluted share as compared with loss from operations of $2.4 million or two cents per diluted share for the prior year-to-date.
Derek: As compared with a net loss of $900000.
Derek: Or a penny per diluted share.
Derek: For the prior year quarter loss from continuing operations year to date was $33 6 million or a negative <unk> 31 per diluted share as compared with loss from operations of $2 4 million or two cents per diluted share for the prior year to date.
Kim Thorpe: As Derek previously explained, the increases and losses from continuing operations are primarily attributable to. A $22 million non-cash goodwill impairment charge and a $9.9 million non-cash charge corresponding with the establishment of a valuation allowance related to our deferred tax assets recorded as of March 31, 2025. EBITDA, which is a non-gap financial measure for the year to date or the quarter and year to date, were negative $900,000 and negative $1.5 million, respectively, compared with negative $1.2 million and negative $2 million for the comparable prior year period. Adjusted EBITDA, which also is a non-GAAP financial measure for the quarter and year to date, were negative $600,000 and negative $900,000, respectively, compared with a negative $600,000 and negative $700,000 for the comparable prior year period.
Derek: As Gary previously explaining the increases in losses.
Derek: From continuing operations are primarily attributable to.
Derek: $22 million noncash goodwill impairment charge.
Derek: And a $9 $9 million noncash charge, a corresponding with the establishment of a valuation allowance related to our deferred tax assets recorded as of March 31 2025.
Derek: EBITDA, which is a non-GAAP financial measures for the year to date and part of the quarter and year to date.
Derek: Were negative 900000, and negative $1 5 million, respectively, compared with negative $1 $2 million and negative $2 million for the comparable prior year period.
Derek: Adjusted EBITDA, which also is a non-GAAP financial measure for the quarter and year to date were negative $600000 and negative $900000 respectively.
Derek: Compared with a negative 600000.
Derek: A negative $700000 for the comparable prior year periods.
Kim Thorpe: Our current or working capital ratio as of March 31, 2025, was a robust 3.9 to 1. Pre-cash flow, a non-GAAP financial measure, including cash flows from discontinued operations for the fiscal year and first half was a negative $1.1 million, as compared with positive cash flow of $400,000 for the fiscal 2024 first half. Our liquidity position as of March 31, 2025 remained very strong with $18.7 million in cash, an undrawn ABL facility of $7.4 million, and net working capital of $24.1 million.
Derek: Our current our working capital ratio as of March 31, 2025 was a robust three nine to one free cash flow are non-GAAP financial measure, including cash flows from discontinued operations for the fiscal year in first half was a negative $1 $1 million.
Derek: As compared with positive cash flow of four.
Derek: $400000 for the fiscal 2020 for first half.
Derek: Our liquidity position as of March 31, 2025 remain very strong with $18 $7 million in cash and Undrawn ABL facility of $7 4 million and net working capital of $24 $1 million.
Kim Thorpe: We had no outstanding debt. Our net book value per share and net tangible book value per share were $0.46 and $0.23 respectively. as of March 31, 2025. The decrease in net book value per share since fiscal 2024, again, was primarily the result of the non-cash impairment and deferred tax valuation related non-cash charges taken if the fiscal second quarter ended March 31, 2025. Importantly, these charges had no effect on our cash position, tangible assets, net working capital, or net tangible book value.
Derek: Had no outstanding debt.
Derek: Our net book value per share and net tangible book value per share were <unk> 46 cents.
Derek: 23, respectively as of March 31, 20, 25% the decrease in net book value per share.
Derek: Fiscal 2024 again was primarily the result of the noncash impairment and deferred tax valuation related non cash charges taken in the fiscal second quarter ended March 31 2025.
Derek: Importantly, these charges had no effect on our cash position.
Derek: Tangible asset networking capital or net tangible book value.
Kim Thorpe: In conclusion, while we obviously are disappointed with our results and face headwinds, causing us to remain appropriately cautious in the near term. We do remain optimistic and are preparing for the long term, including making technological advancements and other enhancements such as a focus and prioritization of the integration of AI across our business verticals for use in our sales and recruiting processes and leveraging our offshore recruiting team to maximize productivity and efficiency. Having completed our acquisition of Hornet Staffing this quarter, we also intend to continue to pursue other accretive opportunities in a very disciplined and prudent manner.
Derek: In conclusion, while we obviously are disappointed with our results and and face headwinds.
Derek: Causing us to remain appropriately cautious in the near term, we do remain optimistic and are preparing for the long term, including making technological advancements and other enhancements such as a focus.
Derek: Prioritization of the integration of AI across our business verticals for use in our sales and recruiting processes and leveraging our offshore recruiting team.
Derek: Maximize productivity and efficiency.
Derek: Having completed our acquisition of Hornet staffing this quarter. We also intend to continue to pursue other accretive opportunities.
Derek: Very disciplined and prudent manner.
Kim Thorpe: Before I turn it back over to Derek, please note that the reconciliations of GEE Group's non-GAAP financial measures discussed today with their GAAP counterparts can be found in supplemental schedules included in our March 31, 2025 second quarter and year-to-date earnings press release.
Derek: Before I turn it back over to Derek. Please note that the reconciliations of <unk> non-GAAP financial measures discussed today with their GAAP counterparts can be found in the supplemental schedules.
Derek: Included in our March 31, 2025 second quarter and year to date earnings press release.
Derek Dewan: Now I'll turn the call back over to Derek. Derek? Thank you, Kim.
Derrick: Now I'll turn the call back over to Derek Derrick Derrick.
Speaker Change: Thank you Kim <unk>.
Derek Dewan: Despite macroeconomic headwinds and staffing industry specific challenges impacting the demand for our services, we are aggressively managing and preparing our business to mitigate losses, restore profitability and be prepared for an anticipated recovery. What we hope you take away from our earnings press release and our remarks today is that we are moving aggressively not only to prepare for a more conducive and growth-oriented labor market, but also to restore profitability through expense reduction and revenue growth by continuing with the execution. on both organic and M&A growth plans and initiatives. We will continue to work hard for the benefit of our shareholders, including consistently evaluating strategic uses of GEE Group's capital to maximize shareholder returns.
Speaker Change: Despite macroeconomic headwinds and staffing industry specific challenges.
Speaker Change: Impacting the demand for our services, 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 is that we were moving aggressively not only to prepare.
Speaker Change: For a more conducive and growth oriented labor market, but also to restore profitability through expense reduction and revenue growth by continuing with the execution.
Speaker Change: 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 group's capital to maximize shareholder returns.
Derek Dewan: We are very pleased with a recent acquisition of Hornet Staffing and the value and opportunities it brings, and have identified other acquisition opportunities that we believe can offer additional growth and profitability platforms for us. before we. pause to take questions.
Speaker Change: We're very pleased with our recent acquisition of Hornet staffing and the value and opportunities. It brings and have identified other acquisition opportunities that we believe can.
Speaker Change: That offer additional growth and profitability platforms for us.
Speaker Change: Before we.
Speaker Change: Pause to take questions I want to again say a special thank you to all our wonderful people for their professionalism hard work and dedication.
Derek Dewan: I want to again say a special thank you to all our wonderful people for their professionalism, hard work, and dedication.
Unknown Executive: Now Kim and I would be happy to answer your question. Please ask just one question and rejoin the queue with a follow-up as needed. If there's time, we'll come back to you for additional questions. Thank you.
Speaker Change: Now, Tim and I would be happy to answer your questions.
Speaker Change: Please ask just one question and rejoin the queue with a follow up as needed. If there is time, we'll come back to you for additional questions.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: The first question that we have is can you provide any additional color on the status of the current M&A pipeline.
Unknown Executive: The first question that we have is, can you provide any additional color on the status of the current M&A pipeline? and the number of deals. you are looking at. We happily can tell you that the pipeline is robust and full.
Speaker Change: And the number of deals.
Speaker Change: You are looking at.
Speaker Change:
Speaker Change: We happily can tell you that.
Speaker Change: The pipeline is robust and full.
Unknown Executive: One of the secondary questions that we have as a follow-up said in this environment you must be cautious when looking at targets to make sure that they've leveled off from the decline that the industry has experienced. starting in the latter part of 2023, continuing through 2024 in the first part of 25. That, in fact, we're doing, we're tracking closely. the current performance of the target. We believe there's a lot of flatlining at this point. and will allow us to proceed on these deals.
Speaker Change: One of the secondary questions that we have.
Speaker Change: As a follow up said in this environment you must be cautious.
Speaker Change: When looking at targets to make sure that they have leveled off from the decline that the industry has experienced starting in the latter part of 2023, continuing through 2024 and the first part of 'twenty five.
Speaker Change: That in fact, we're doing and we're tracking closely.
Speaker Change: The current performance of the targets.
Speaker Change: We believe there is a lot of flatlining.
Speaker Change: At this point.
Speaker Change: And will allow us to proceed.
Speaker Change: On these deals.
Unknown Executive: Another question is, do you have any letters of intent? that are outstanding, and of course, they're non-binding, I can say yes.
Speaker Change: Another question is.
Do you have any letters of intent.
Speaker Change: That are outstanding and of course, they are nonbinding.
Speaker Change: I can say, yes.
Unknown Executive: The other question that we have related to M&A. Do you expect to get M&A done in this fiscal year? The answer is yes.
Speaker Change: The other question that we have related to M&A.
Speaker Change: You expect to get.
Speaker Change: M&A.
<unk> done in this fiscal year.
Speaker Change: The answer is yes.
Speaker Change: Kim next question that we have deals with.
Kim Thorpe: Kim, the next question that we have deals with pipeline. We got that. 10-Q. Kim, it said that in the 10-Q, the discussion of M&A was not prominent. I don't think that was by design. Can you comment on that? Yeah, when we drafted the 10-Q this quarter, look back at the 10-Q last quarter, our intention was just to be a little more brief. But we do still make reference to what I believe the questioner is asking about, which were the strategic initiatives, where we talked about M&A and such. But the bottom line is M&A continues to be a prominent piece of our near-term and long-term strategy.
Speaker Change: Pipeline, we got that.
Speaker Change: Uh huh.
Speaker Change: 10-Q.
Speaker Change: That said the 10-Q the discussion of M&A was not prominent.
Speaker Change: I think that was by design can you comment on that.
Speaker Change: Yeah.
Speaker Change: We.
Speaker Change: When we drafted the 10-Q this quarter or look back at the 10-Q last quarter.
Speaker Change: Retention was just give me a little more brief.
Speaker Change: But we do still make reference to what I believe the question Youre, asking about which were the strategic initiatives.
Speaker Change: We talked about M&A and such but the bottom line is.
Speaker Change: M&A continues to be a prominent.
Speaker Change: Piece of our.
Speaker Change: Our near term and long term strategy.
Kim Thorpe: However, we are being cautious about it because our entire industry is now in a place where revenues are at lower levels. So, again, we're just being very conservative and being very prudent about how we identify and move actually fundamentally change. Okay, thank you.
Speaker Change: However, we are being cautious about it because.
Speaker Change: Our entire industry is down.
Eric: Eric a place where revenues are at lower levels. So.
Eric: Again, we're just being very conservative and being very prudent about how we identify and.
Eric: And move forward with targets, but nothing other than that.
Eric: Nothing is actually fundamentally changed.
Eric: Okay. Thank you.
Kim Thorpe: Kim, will you comment on the status of the industrial business and its potential sale? Yes, there's a question here that wants to know, in sum, it's basically, what took you so long on the industrial sale? Actually, the sale was commissioned as part of the Strategic Alternatives Review last April, not this immediate April, but April prior. But it took some time for management to do some work at the business, and then also to run a process. We did not use professional institutional advisors, so we ran it internally based on relationships and introductions that we reached out for, and it's a process.
Speaker Change: Kim will you comment on the status of the industrial business and its potential sale.
Eric: Yes.
Eric: There is a question here that wants to.
Eric: It's basically.
Eric: What took you so long.
Eric: On the industrial sale.
Eric: Actually.
Eric: The sale was was commissioned as part of the strategic alternatives review.
Eric: Last April not not this immediate April but April.
Eric: Prior.
Eric: But it took some time for management to do some work at the business and then also to run a process we did not use.
Eric: Professional.
Eric: <unk> advisors. So we ran it internally based on relationships and introductions.
Eric: That we.
Eric: Reached out for.
Eric: And it's a process, but more or less we think that it's gone very well and that the end result will be good and it should it should close sooner.
Kim Thorpe: But more or less, we think that it's gone very well and that the end result will be good, and it should close soon.
Eric: Yeah.
Unknown Executive: Thank you. Yeah.
Eric: Thank you.
Eric: Yeah.
Derek Dewan: Another question we have. is regarding the potential for share repurchases and stock buybacks. Would you do these in conjunction with M&A? in lieu of or otherwise. We recently had a board meeting and we had a deep discussion of both M&A and share repurchases. I can tell you that both are on the list of enhancing shareholder value and the timing of execution of either of those or both. will be determined by visibility on our existing business. We'd like to be in a net neutral or positive cash flow position before we move forward on share repurchases but we believe that both of those share repurchases in M&A can be done in kandem.
Another question we have.
Eric: Is regarding the potential for.
Eric: Share repurchases and stock buybacks.
And <unk>.
Eric: Would you do these in conjunction with M&A.
Eric: In lieu of or.
Eric: Or otherwise.
Eric: We recently had a board meeting.
Eric: And we have a deep discussion.
Eric: Of both M&A and share repurchases.
Eric: I can tell you that both are on.
Eric: The.
Eric: List of enhancing shareholder value and the timing of execution.
Eric: Either of those or both.
Eric: We will be determined.
Eric: By visibility on our existing business, we'd like to be in a net neutral or positive cash flow position.
Eric: We move forward.
Eric: On.
Eric: Share repurchases.
Eric: But.
Eric: We believe that both of those share repurchases and M&A can be done.
Eric: In tandem.
Derek Dewan: and there has been a lot of attention put on both by our directors and senior management, so rest assured we will deploy the capital appropriately and judiciously. We have been very careful not to make bad moves during an environment that is what I would call volatile for the industry. with global macroeconomic challenges as well. We see on the horizon that those challenges will start to be more muted and will eventually turn around. So we are very excited about the opportunity. that we can improve shareholder value. this fiscal year and next. and that we have the liquidity to do it.
Eric: And there has been a lot of attention put on both by our directors and senior management.
Eric: So.
Eric: Rest assured we will deploy the capital appropriately and judiciously.
Eric: We have been very careful not to make.
Eric: Bad moves during.
Eric: And environment.
Eric: That is what I would call volatile for the industry.
Eric: With global macroeconomic challenges as well.
Eric: We see on the horizon that those challenges will start to be more muted.
Eric: And we will eventually turn around.
Eric: So.
Eric: We are very excited about the opportunity.
Eric: That we can improve shareholder value.
Eric: This fiscal year and next.
Eric: And that we have the liquidity to do it and Tim I'll, let you add your thoughts on that too.
Derek Dewan: And Kim, I'll let you add your thoughts on that too. Yeah, I mean, the I'm sorry, Derek, I was I was reading another question and devising a so an answer. That's okay. So So really, the tandem of both stock buybacks and M&A and I don't think one is in lieu of the other I think that we've given a deep consideration can have both of those on the agenda for opportunities moving forward. And that's what I was commenting on. Yeah, I don't have anything to add. I agree. Yes. Okay.
Eric: Yes.
Eric: Yeah.
Derek: I'm sorry, Derek I was I was reading your another question and devote devising a.
Eric: So.
Eric: So thats, okay. So so really the tandem of both stock.
Eric: Stock buybacks and M&A and I don't think one is it alluded the other I think that we've given a deep consideration.
Ted have both of those on the agenda for opportunities moving forward.
Eric: And that's what I was commenting on yeah.
Eric: Yes, I don't have anything to add I agree yes, okay.
Unknown Executive: Great.
Great.
Speaker Change: Can we take the next question that you were.
Kim Thorpe: Kim, take the next question that you were taking a look at.
Eric: Taking a look at.
Kim Thorpe: Yeah, this I've got kind of a lengthy question here. And I want to, I'm not going to read it entirely, because I it's a little bit long. But basically, the idea is, we commented back in December of 2023, when the stock price was around 49 cents. We've made I made a comment and provided an analysis of why we thought that was a good stock price. and basically or verbally walk through some math to get there, including the application of a control premium and things of that nature.
Eric: Yes.
I've got kind of a lengthy question here and I want to.
Eric: Not going to read it entirely because it's a little bit long, but basically the idea is.
Eric: We commented back in December of 2023.
Eric: When the stock.
Eric: Price was.
Eric: It was around 49 cents.
Eric: I made a comment in.
Eric: And provided analysis of why we thought that was a good stock price stock price and basically.
Eric: Andy.
Eric: <unk> walked through some math to get there including.
Eric: The application of a control premium and things of that nature, but without getting into all of that.
Kim Thorpe: But without getting into all that, the point of the question is, gee, you thought 49 cents didn't give any value to the business at December 2023. Now, the stock's trading at 18 cents and basically you're saying there's no value being given to the operating business, and basically the point is...
Eric: The point of the question is.
Speaker Change: Gee, you thought 49 cents didn't give any value to the business at December 2023.
Eric: Now.
Eric: The stock is trading at 18 centers and basically you are saying there is no value being given to the operating business.
Eric: Basically the point is.
Kim Thorpe: How do I get from 2023 to now? And the answer is very simple. On December 19, 2023, we were just beginning to see the severity of the downturn in the market. and it's been a long time since then to get to where we are now and 2024 turned out to be much, much worse than we were forecasting in 2023. But what I would say to the writer of the question here is, if I take the 18 cents a share and our 23 cents of tangible book value, that's still 27% above 18 cents. So the value of the businesses do change over time.
Eric: How do I get from 2023, there now and the answer is very simple.
Eric: On December 19, 2023, we were just beginning.
Eric: Beginning to see.
Eric: The severity of the downturn in the market.
Eric: And it's been a long time since then to get to where we are now in 2024 turned out to be much much worse than we were forecasting in 2023, but what I would say to the right or the question here is.
Eric: If I take the 18 cents a share.
Eric: In Europe, and our 20 <unk> obtained.
Eric: Tangible book value, that's still 27% above <unk>.
Eric: So.
Eric: The value of the businesses do change over time and in our case.
Kim Thorpe: And in our case, in 2023, we were projecting revenues that were a third higher than where they are now. So it's been very much a situation of dealing with a very, very challenging business environment that frankly, is affecting the entire staffing industry. You could pose this question or one like it to almost every other competitor of ours out there.
Eric: In 2023, we were projecting revenues.
Eric: We're a third higher than where they are now so.
Eric: It's been very much a situation of dealing with.
Eric: A very very challenging business environment that frankly is affecting the entire staffing industry you could pose this question or one like it almost every other competitor of ours out there.
Eric: Okay.
Unknown Executive: Thank you, Kim.
Kim: Thank you Kim.
Eric: Sure.
Derek Dewan: Another question is whether or not. The lack of action on either share repurchases or more aggressive acquisition activity is indicative of a strategy, and the answer is no. are very focused upon. And the expectation is to use. our capital appropriately. for acquisitions and potential share repurchases as well. The pause was due to economic uncertainty at the time and trying to gauge the level of liquidity we need to maintain in the near term in order to execute appropriately on our strategy. And we believe at this point, shareholders would like to see activity, we concur with that.
Eric: Another question is.
Eric: Whether or not.
Eric: The lack of action on either share repurchases or more aggressive acquisition activity is indicative of our strategy and the answer is no.
Eric:
Eric: Both.
Eric: Our very focused upon.
Eric: And the expectation is to use.
Eric: Our capital appropriately.
Eric: For acquisitions and potential share repurchases as well.
Eric: The pause was due to economic uncertainty at the time.
Eric: And.
Eric: Trying to gauge the level of liquidity, we need to maintain in the near term.
Eric: Order to execute appropriately on our strategy.
Eric: We believe at this point.
Eric: Shareholders.
Eric: I would like to see activity, we concur with that.
Derek Dewan: So, we get a little more visibility in 2025, which we think is is somewhat stable at this point, and we hope that it stays that way and actually turns into more prosperity when some of these macro factors settle down with interest rates, tariffs.
Eric: So.
Eric: We get a little more visibility.
Eric: In 2025, which we think is is.
Eric: Somewhat stable at this point and we hope that it stays that way it actually turns into.
Eric: More prosperity when some of these macro factors settle down with interest rates tariffs inflation tax cuts and so forth.
Eric: Our customers will be more confident on their growth plans.
Derek Dewan: You're welcome. and any capital allocation regarding share purchases that are prudent at that point will be implemented hopefully. So these are the things that we're focused on, having deep discussions on, and I can assure you that you as shareholders will see activity that We're excited about the prospects. Because we position ourselves, we're very close to breakeven financially. We're going to get to the profitability that we need. and then move forward on external growth and capital allocation, as I discussed.
Eric: And we will open the spigot a bit so we can get organic growth.
Eric: The M&A activity could speed up.
Eric: And any capital allocation regarding share purchases share purchases that are prudent at that point.
Eric: <unk> will be implemented hopefully so.
Eric: These are the things that we're focused on.
Eric: Having deep discussions on and I can assure you.
Eric: That you as shareholders will see activity this year.
Eric: We're excited about the prospects.
Eric: As we position ourselves, we're very close to breakeven financially, we're going to get to the profitability that we need.
Eric: And then move forward on external growth and capital allocation as I discussed.
Derek Dewan: Another question, Kim, that we got is regarding the sale of industrial. What would we do with the proceeds? The answer to that is execute our growth strategy, which includes M&A, potential capital allocation for repurchase, and so forth.
Eric: Another question Kim that we got is regarding the sale of industrial what would we do with the proceeds.
Eric: The answer to that is.
Eric: Execute our growth strategy.
Eric: Which includes M&A.
Eric: Potential capital allocation for repurchase and so forth.
Eric: Correct any other go.
Derek Dewan: We'll bring the proceeds back into our cash reserves and then it'll be managed in due course as the Board of Management hammer out our capital allocation strategy and plans in the near term.
Eric: Go ahead, Kim will bring the proceeds back into our cash reserves.
Eric: And.
Eric: And then we'll.
Eric: It will be managed and in due course.
Eric: The board of management and Hammer out our capital allocation.
Eric: Our strategy and plans in the near term.
Eric: Another question is that.
Derek Dewan: Another question is that, do we have any expectation of our larger shareholders? Red Oak and Golden Wasp. Any activity that we know about? The answer is no unusual activity there. both have been good shareholders and supportive. and would like to see, obviously, the stock price move forward and us to execute more rapidly on our strategy, and we concur with both of those. So we're aligned at this point.
Eric: Do we have any expectation of our larger shareholders.
Speaker Change: Red Oak and Goldman Wise.
Eric: Any activity.
Eric: That we know about the answer is no unusual activity there.
Eric: Both have been good shareholders and supportive.
Eric: And we'd like to see obviously, the stock price move forward and us to execute more rapidly on our strategy.
Eric: And we concur with both of those so.
Eric: We're aligned at this point.
Eric: Insider purchases I think that.
Derek Dewan: Insider purchases, I think that Mr. Sandberg and Mr. Waterfield as newer board members have made purchases of significant size. And I think most of us are pretty good exercise equity holders. Insider Purchases. can happen, although we have to move around potential non-public information.
Eric: Mister Sandburg aims to waterfield as newer board members have made purchases.
Eric: Our significant size and I <unk>.
Eric: Most of us are pretty good excise equity holders and.
Eric: Insider purchases.
Can happen, although we have to move around potential nonpublic information that.
Derek Dewan: We'll be not public because of our execution of our growth strategy and capital allocation But we can do that in tandem with what we want to do.
Eric: We will be.
Eric: Not public because of our execution of our growth strategy and capital allocation, but we can do that in tandem with what we wanted to do we just have to be careful of how we do it.
Kim Thorpe: We just have to be careful of how we do it Kim, you want to take another question? Yeah, what are you planning on doing specifically to reduce SGMA? We have several things we're doing. Obviously, we're constantly reviewing performance of the different businesses, and we're also looking at occupancy costs and job boards and all kinds of different things. We do have plans to take some costs out. Two things in particular that we think are going to be very helpful and contribute over the next 12 months to taking out significant costs are more of an assertive move into use of offshore recruiters, which are lower cost and can open up more VMS, MSP, high volume business to us.
Tim: Tim you want to take another question.
Tim: Yes, what are you planning on doing specifically to reduce SG&A.
Tim: We had we have several things we're doing we're obviously we're constantly.
Tim: Reviewing.
Tim: Performance of the different businesses.
And we're also looking at.
Tim: Yes.
Tim: Occupancy cost and job boards, and all kinds of different things.
Tim: We do have plans.
Tim: Got it.
To take some costs out what two things in particular that we think are going to be very helpful and contribute.
Tim: Over over the next 12 months.
Tim: <unk> out significant costs.
Tim: Are.
Tim: More of an assertive move into use of offshore recruiters.
Tim: Which are lower cost.
Tim: Open up more Vms MSP high volume business to us that's one and.
Kim Thorpe: That's one. And the second one is artificial intelligence, AI. We believe AI has a lot of opportunity, presents a lot of opportunity for us to make our recruiting not only more efficient, but higher quality, as well as facing our clients and in our sales processes. It's getting a lot, there's a lot going on out there right now. And so I wouldn't, I would expect that you'll hear some stuff from us on both those accounts going forward in the near future. OK.
Tim: And the second one is artificial intelligence AI.
Tim: We believe AI AI has a lot of <unk>.
Tim: <unk> presents a lot of opportunity for us.
Tim: To make our recruiting not only more efficient but.
Tim: Higher quality.
Tim: As well as facing our clients and our sales processes.
Tim: It's getting a lot there's a lot going on out there right now and so I wouldn't.
Tim: I would expect.
Tim: Youll hear some stuff from us on both those accounts.
Tim: Going forward in the near future.
Tim: Okay.
Tim:
Tim: Yeah.
Derek Dewan: I think we covered most of the questions. thus far. I think that the majority of the questions dealt with M&A a capital allocation regarding potential share repurchases and kind of overall operational efficiencies to be gained this fiscal year. and of course restoring profitability back to where it needs to be. So I can assure you that each of those has. A lot of attention from senior management and our directors. We expect to execute very aggressively on all fronts. take advantage of the uptick or upswing. in the industry which we anticipate the latter part of the year, moving into 2026.
Tim: I think we covered most of the questions.
Tim: Thus far.
Tim: Inc that the majority of the questions dealt with.
Tim: M&A.
Tim: Our capital allocation regarding potential share repurchases.
Tim: And.
Tim: Kind of overall operational.
Tim: Efficiencies to be gained.
Tim: This fiscal year.
Tim: And of course, we're storing profitability back to where it needs to be.
Tim: So I can assure you that each of those has.
Tim: A lot of attention from senior management and our directors.
Tim: We expect.
Tim: To execute very aggressively.
Tim: On all fronts.
Tim: And <unk>.
Tim: Take advantage of the uptick or upswing.
Tim: And the industry, which we anticipate the latter part of the year.
Tim: Moving into 2026.
Derek Dewan: And in any event, even with a flat business environment, you can get market share from competitors, be more aggressive there as well. and we're pretty excited about the opportunity to get back to the road to prosperity.
Tim: And in any event.
Tim: Even with a flat business environment.
Tim: We can get market share.
Tim: From competitors be more aggressive there as well.
Tim: And we're pretty excited about the opportunity.
Tim: To get back to the road to prosperity.
Derek Dewan: So at this point, we're going to terminate the call, but I really appreciate those. shareholders that are on and other interested parties, and I can tell you we're working very hard. to get performance. to where it needs to be, which will also obviously influence share price. Thanks again for joining us, and that concludes our call.
Tim: So at this point, we're going to terminate the call, but I really appreciate those.
Tim: Shareholders that are on and other interested parties and I can tell you we're working very hard.
Tim: To get performance.
Tim: To where it needs to be which will also obviously influenced share price. Thanks again for joining us and that concludes our call.