Overview
GEE Group Inc. and its wholly owned material operating subsidiaries, Access Data
Consulting Corporation, Agile Resources, Inc., BMCH, Inc., Paladin Consulting,
Inc., Scribe Solutions, Inc., SNI Companies, Inc., Triad Logistics, Inc., and
Triad Personnel Services, Inc. (collectively referred to as the "Company", "us",
"our", or "we") are providers of permanent and temporary professional and
industrial staffing and placement services in and near several major U.S cities.
We specialize in the placement of information technology, accounting, finance,
office, and engineering professionals for direct hire and contract staffing for
our clients, data entry assistants (medical scribes) who specialize in
electronic medical records (EMR) services for emergency departments, specialty
physician practices and clinics, and provide temporary staffing services for our
industrial clients. The acquisitions of Agile Resources, Inc., a Georgia
corporation ("Agile"), Access Data Consulting Corporation, a Colorado
corporation ("Access"), Paladin Consulting Inc. ("Paladin") and SNI Companies,
Inc., a Delaware corporation ("SNI") expanded our geographical footprint within
the placement and contract staffing verticals or end markets of information
technology, accounting, finance, office and engineering professionals.
The Company markets its services using the trade names General Employment
Enterprises, Omni One, Ashley Ellis, Agile Resources, Scribe Solutions Inc.,
Access Data Consulting Corporation, Paladin Consulting Inc., SNI Companies
(including Staffing Now, Accounting Now, and Certes), Triad Personnel Services
and Triad Staffing. As of June 30, 2022, we operated twenty-eight (28) branch
offices in downtown or suburban areas of major U.S. cities in eleven (11) states
and serve four (4) additional U.S. locations utilizing local staff members
working remotely. We have offices or serve markets remotely, as follows; (i) one
office in each of Connecticut, Georgia, Minnesota, and New Jersey; (ii) two
offices each in Illinois and Massachusetts; (iii) three offices in Colorado;
(iv) four offices and two additional local market presences in Texas; (v) six
offices and one additional local market presence in Florida; (vi) seven offices
in Ohio; and (vii) one remote local market presence in Virginia.
Management has implemented a strategy which includes organic and acquisition
growth components. Management's organic growth strategy includes seeking out and
winning new client business, as well as expansion of existing client business
and on-going cost reduction and productivity improvement efforts in operations.
Management's acquisition growth strategy includes identifying strategic
acquisitions, financed primarily through a combination of cash and the issuance
of equity and/or debt to improve the overall profitability and cash flows of the
Company.
The Company's contract and placement services are principally provided under two
operating divisions or segments: Professional Staffing Services and Industrial
Staffing Services. We believe our current segments and array of businesses and
brands within our segments complement one another and position us for future
growth.
Network Security Incident and Risk
On February 1, 2022, the Company detected and stopped a network security
incident. An unauthorized third party gained access into our network, encrypted
various systems, and demanded money to decrypt the affected systems and to
delete and not publicly release stolen information. The Company's IT
professionals immediately disconnected and isolated the affected systems to
prevent any further compromise. The senior executive management team was
immediately notified who in turn reported the network security incident to the
Company's Audit Committee chairman who has board oversight authority for these
types of matters. The Company's audit committee and board of directors were
fully briefed and a special committee of the board of directors was appointed to
assist and oversee management in the investigations, response and full
remediation of the incident. The Company engaged third party cyber security
experts to assist its internal IT professionals and conducted a comprehensive
investigation to determine the extent of the unauthorized activity. The Company
also notified law enforcement and its cyber liability insurance carrier about
the incident.
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The Company's investigation determined that the unauthorized third party
acquired a relatively small amount of data maintained on the encrypted servers,
to include in some cases, individual personal information such as names, social
security numbers, passport and driver license information. Our forensic
investigation has been concluded and we believe we have reasonably determined
the scope of the incident. Individuals affected by this incident are in the
process of being notified in accordance with applicable state and federal laws.
The cost of investigating and resolving the incident has been immaterial. Based
on what management and the Company's third-party cyber security experts have
determined in their investigation, the Company also does not foresee this
incident having any future material detrimental effect on our business or
financial position. The Company has in place cyber liability insurance coverage,
subject to certain policy limitations and deductibles. The Company had also
immediately notified the cyber insurance carrier of the network security
incident, who worked with management and the Company's third-party cyber
security experts on this matter.
The Company's network environment is fully operational and additional security
measures have been added and/or are being evaluated to prevent further
intrusions. The Company has not observed any additional malicious activity on
the network to date. The Company's operations were only minimally impacted by
the incident, and we were able to serve our clients and other stakeholders
without issue throughout.
Coronavirus Pandemic ("COVID-19")
In approximately mid-March 2020, the Company began to experience the severe
negative effects of the economic disruptions resulting from the Coronavirus
Pandemic ("COVID-19"). These have included abrupt reductions in demand for the
Company's primary sources of revenue, its temporary and direct hire placements,
and lost productivity due to business closings both by clients and at the
Company's own operating locations. Some effects of COVID-19 and the subsequent
variants of the virus continue to be felt to an extent, with the most severe
impacts being felt in the industrial segment and, to a lesser extent, in the
finance, accounting, and office clerical ("FAO") end markets within the
professional segment. In response to the crisis, in April 2020 we took a series
of proactive actions including a temporary 10% pay cut for full-time salaried
employees, temporary furloughing and redeployment of some employees, reduction
of discretionary expenses and projects, and obtaining funds under CARES Act
Paycheck Protection Program ("PPP"). These actions allowed us to generate cost
savings and time with which to mitigate the impacts of the COVID-19 pandemic on
our businesses and brands. Our businesses have continued their recoveries to a
significant extent during the nine months ended June 30, 2022. While we have
experienced significant recovery and in recent quarters returned to or exceeded
pre-COVID-19 levels of results and performance, the rate of future growth is
still somewhat dependent upon potential resurgences and negative impacts of
COVID-19 and variants thereof, and effects, if any, these may have on the U.S.
economy in the future, including the markets and clients we serve.
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Results of Operations
Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30,
2021
Net Revenues
Consolidated net revenues are comprised of the following:
Three Months
Ended June 30,
2022 2021 Change Change
Professional contract services $ 28,967 $ 28,747 $ 220 1 %
Industrial contract services 4,120 3,792 328 9 %
Total professional and industrial
contract services 33,087 32,539 548 2 %
Direct hire placement services 8,026 5,529 2,497 45 %
Consolidated net revenues $ 41,113 $ 38,068 $ 3,045 8 %
Contract staffing services contributed $33,087, or approximately 80%, of
consolidated revenues and direct hire placement services contributed $8,026, or
approximately 20%, of consolidated revenues for the three-month period ended
June 30, 2022. This compares to contract staffing services revenues of $32,539,
or approximately 85%, of consolidated revenues and direct hire placement
revenues of $5,529, or approximately 15%, of consolidated revenues for the
three-month period ended June 30, 2021.
The overall increase in contract staffing services revenues of $548, or 2%, for
the three-month period ended June 30, 2022 compared to the three-month period
ended June 30, 2021 was attributable to increased demand for employment in our
professional and industrial contract services markets. The resulting increases
in professional contract services revenues of $220, or 1%, and industrial
contract services revenues of $328, or 9%, also are believed to have been
positively impacted by a lessening of the negative effects of COVID-19.
Direct hire placement revenues for the three-month period ended June 30, 2022
increased by $2,497, or approximately 45%, as compared to the three-month period
ended June 30, 2021. The large increases in direct hire revenues appear to be
driven, in part, by continued volatility in the workforce leading some companies
to staff harder to find positions with permanent employees, rather than contract
employees. It also is believed that the larger proportion of fully remote
workers in the workforce today is causing some employers to favor permanent
hires over contractors so that they may maintain direct access and control for
purposes of security over their networks and other assets. In particular, the
Company has been successful in growing direct hire revenues across its
information technology brands, in addition to its finance, accounting and office
brands.
Management believes that the significant net growth in revenues during the
three-month period ended June 30, 2022, compared to the three-month period ended
June 30, 2021, is generally in line with trends being experienced in the overall
U.S. economy. The Company also continues to observe, analyze and, where
considered appropriate, make modifications and changes to its business model and
practices in response to the COVID-19 pandemic and related health and safety
concerns, including those associated with its variants. These include, but are
not limited to, implementation of preventative policies and procedures in
observance of Federal, state and/or local guidelines with regard to COVID-19 and
its variants, use of personal protective equipment (principally, protective
masks), and others. The Company also continues to take advantage of flexible and
hybrid work-from-home employment arrangements and has adopted the strategy of
converting certain of its branch office locations to virtual locations where
efficiencies are available.
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Cost of Contract Services
Cost of contract services includes wages and related payroll taxes and employee
benefits of the Company's contract services employees, and certain other
contract employee-related costs, while working on contract assignments. Cost of
contract services for the three-month period ended June 30, 2022 totaled
$24,612, as compared to $24,242 for the three-month period ended June 30, 2021.
This increase of $370, or approximately 2%, is consistent with the increase in
contract service revenues as discussed further above.
Gross Profit percentage by service:
Three Months
Ended June 30,
2022 2021
Professional contract services 26.9 % 26.8 %
Industrial contract services 16.6 % 15.4 %
Professional and industrial services combined 25.6 % 25.5 %
Direct hire placement services 100.0 % 100.0 %
Combined gross profit margin % (1) 40.1 % 36.3 %
(1) Includes gross profit from direct hire placements, for which all
associated costs are recorded as selling, general and administrative
expenses.
The Company's combined gross profit margin, including direct hire placement
services (recorded at 100% gross margin) for the three-month periods ended June
30, 2022 and 2021 were approximately 40.1% and 36.3%, respectively. The overall
improvement in the Company's combined gross profit margin is largely due to the
increase in and higher mix of direct hire revenues.
In the professional contract services segment, the gross margin (excluding
direct hire placement services) was approximately 26.9% for three-month period
ended June 30, 2022 compared to approximately 26.8% for the three-month period
ended June 30, 2021. This increase is primarily due to price increases
associated with wage increases necessary to attract or retain contract services
employees and the resulting increased spreads and margins for services performed
in our professional contract services segment.
The Company's industrial contract services gross margin for the three-month
period ended June 30, 2022 was approximately 16.6% versus approximately 15.4%
for the three-month period ended June 30, 2021. The industrial contract services
gross margins excluding the effect of estimated premium refunds the Company's
industrial business is eligible to receive under the Ohio Bureau of Workers'
Compensation retrospectively rated insurance program were approximately 15.5%
and 14.9% for the three-month periods ended June 30, 2022 and 2021,
respectively. Industrial services margins also have improved with price
increases associated with wage increases necessary to attract or retain contract
services employees and resulting increased spreads and margins for services.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") include the following
categories:
· Compensation and benefits in the operating divisions, which includes
salaries, wages, and commissions earned by the Company's employment
consultants, recruiters, and branch managers on permanent and temporary
placements;
· Administrative compensation, which includes salaries, wages, payroll taxes
and employee benefits associated with general management and the operation
of corporate functions, including principally, finance, human resources,
information technology and administrative functions;
· Occupancy costs, which includes office rent, depreciation and
amortization, and other office operating expenses;
· Recruitment advertising, which includes the cost of identifying and
tracking job applicants;
· Other selling, general and administrative expenses, which includes travel,
bad debt expense, fees for outside professional services, and other
corporate-level expenses such as business insurance and taxes.
The Company's SG&A for the three-month period ended June 30, 2022, increased by
$1,747 as compared to the three-month period ended June 30, 2021. SG&A for the
three-month period ended June 30, 2022, as a percentage of revenues, were
approximately 31% compared to approximately 29% for the three-month period ended
June 30, 2021. In addition to overall growth of the business, resulting in
additional incentive compensation and bonuses, the increase in SG&A expenses and
ratios were affected by a charge related to a severance agreement totaling $328.
SG&A expenses includes certain non-cash costs and expenses incurred related to
acquisition, integration and restructuring, and other non-recurring activities,
such as certain corporate legal and general expenses associated with capital
markets activities that either are not directly associated with core business
operations or have been eliminated on a going forward basis. These costs were
estimated to be $340 and $159 for the three-month periods ended June 30, 2022
and 2021, respectively, and include mainly expenses associated with former
closed and consolidated locations, and personnel costs associated with
eliminated positions.
Depreciation Expense
Depreciation expense was $96 and $78 for the three-month periods ended June 30,
2022, and 2021, respectively. The increase in depreciation expense is due to
fixed assets additions.
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Amortization Expense
Amortization expense was $720 and $1,015 for the three-month periods ended June
30, 2022 and 2021, respectively. The decrease is due to intangible assets
related to certain trade names becoming fully amortized since June 30, 2021.
Income from Operations
The income from operations increased by $1,205 for the three-month period ended
June 30, 2022 compared to the three-month period ended June 30, 2021. The lower
than proportional increase relative to increases in revenues, gross profit and
gross margins is due to the factors described above, including notably, higher
incentive compensation and bonuses.
Interest Expense
Interest expense was $96 for the three-month period ended June 30, 2022, which
decreased by $443 compared to the three-month period ended June 30, 2021. The
decrease in interest expense is mainly attributable to the interest expense
incurred under the Former Credit Agreement included in the three-month period
ended June 30, 2021. The Company's Former Credit Agreement contributed $459 in
cash interest during the three-month period ended June 30, 2021. On April 20,
2021, the Company retired and fully repaid its remaining principal and accrued
interest and fee balances due and retired its Former Credit Agreement.
Provision for Income Taxes
The Company recognized a tax expense (benefit) of $96 and $(29) for the
three-month periods ended June 30, 2022 and 2021, respectively. Our effective
tax rate for the three-month periods ended June 30, 2022 and 2021 is lower than
the statutory rate primarily due to the effect of the valuation allowance on the
net DTA position. Other than the deferred tax liability relating to indefinite
lived intangible assets, the Company is maintaining a valuation allowance
against the remaining net DTA position.
Net Income (Loss)
The Company's net income (loss) was $2,633 and $(937) for the three-month
periods ended June 30, 2022 and 2021, respectively. In addition to the factors
described above, this increase is mainly due to a loss on debt extinguishment
during the three-month period ended June 30, 2021. This loss was due to a charge
off of unamortized debt costs related to the term loan pay-off in the amount of
$4,004, offset by gains of $1,957 from forgiveness and extinguishment of PPP
loans during the three-month period ended June 30, 2021.
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Nine Months Ended June 30, 2022 Compared to the Nine Months Ended June 30, 2021
Net Revenues
Consolidated net revenues are comprised of the following:
Nine Months
Ended June 30,
2022 2021 Change Change
Professional contract services $ 91,572 $ 81,923 $ 9,649 12 %
Industrial contract services 11,944 12,927 (983 ) -8 %
Total professional and industrial
contract services 103,516 94,850 8,666 9 %
Direct hire placement services 20,073 12,579 7,494 60 %
Consolidated net revenues $ 123,589 $ 107,429 $ 16,160 15 %
Contract staffing services contributed $103,516, or approximately 84%, of
consolidated revenue and direct hire placement services contributed $20,073, or
approximately 16%, for the nine-month period ended June 30, 2022. This compares
to contract staffing services revenue of $94,850, or approximately 88%, of
consolidated revenue and direct hire placement revenue of $12,579, or
approximately 12%, of consolidated revenue for the nine-month period ended June
30, 2021.
The overall increase in contract staffing services revenues of $8,666, or 9%,
for the nine-month period ended June 30, 2022 compared to the nine-month period
ended June 30, 2021 was primarily attributable to increased demand for
employment in our professional contract services markets, resulting in an
increase in revenues of $9,649, or 12%, as the negative effects of COVID-19
lessen and the U.S. economy and workforce continue to improve toward
pre-COVID-19 conditions. Revenues for the nine-month period ended June 30, 2022
also include staffing support for vaccination and testing facilities and
locations established to respond to COVID-19 and its variants. Industrial
staffing services revenues decreased by $983, or 8%, due mainly to reoccurrence
of adverse conditions associated with COVID-19 variants, which caused
significant disruptions in the industrial markets we serve and resulting in a
decrease in demand for our industrial staffing services during the first fiscal
quarter of 2022.
Direct hire placement revenue for the nine-month period ended June 30, 2022
increased by $7,494, or approximately 60%, over the nine-month period ended June
30, 2021. The large increases in direct hire revenues appear to be driven, in
part, by continued volatility in the workforce leading some companies to staff
harder to find positions with permanent employees, rather than contract
employees. It also is believed that the larger proportion of fully remote
workers in the workforce today is causing some employers to favor permanent
hires over contractors so that they may maintain direct access and control for
purposes of security over their networks and other assets. In particular, the
Company has been successful in growing direct hire revenues across its
information technology brands, in addition to its finance, accounting and office
brands.
Management believes that the significant net growth in revenues during the
nine-month period ended June 30, 2022, compared to the nine-month period ended
June 30, 2021, is generally in line with trends being experienced in the overall
U.S. economy. The Company also continues to observe, analyze and, where
considered appropriate, make modifications and changes to its business model and
practices in response to the COVID-19 pandemic and related health and safety
concerns, including those associated with its variants. These include, but are
not limited to, implementation of preventative policies and procedures in
observance of Federal, state and/or local guidelines with regard to COVID-19 and
its variants, use of personal protective equipment (principally, protective
masks), and others. The Company also continues to take advantage of flexible and
hybrid work-from-home employment arrangements and has adopted the strategy of
converting certain of its branch office locations to virtual locations where
efficiencies are available.
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Cost of Contract Services
Cost of contract services includes wages and related payroll taxes and employee
benefits of the Company's contract services employees, and certain other
contract employee-related costs, while working on contract assignments. Cost of
contract services for the nine-month period ended June 30, 2022 totaled $76,992
as compared to $70,115 for the nine-month period ended June 30, 2021. This
increase of $6,877, or approximately 10%, is consistent with the increase in
revenues as discussed further above.
Gross Profit percentage by service:
Nine Months
Ended June 30,
2022 2021
Professional contract services 26.9 % 26.2 %
Industrial contract services 15.5 % 25.2 %
Professional and industrial services combined 25.6 % 26.1 %
Direct hire placement services 100.0 % 100.0 %
Combined gross profit margin % (1) 37.7 % 34.7 %
(1) Includes gross profit from direct hire placements, for which all
associated costs are recorded as selling, general and administrative
expenses.
The Company's combined gross profit margins, including direct hire placement
services (recorded at 100% gross margin) for the nine-month periods ended June
30, 2022 and 2021 were approximately 37.7% and 34.7%, respectively. The overall
improvement in the Company's combined gross profit margin is largely due to the
increase in and higher mix of direct hire revenues.
In the professional contract services segment, the gross margin (excluding
direct hire placement services) was approximately 26.9% for the nine-month
period ended June 30, 2022 compared to approximately 26.2% for the nine-month
period ended June 30, 2021. This increase is primarily due to price increases
associated with wage increases necessary to attract or retain contract services
employees and the resulting increased spreads and margins for services performed
in our professional contract services segment. The Company's gross margins also
were impacted by shifts in the amounts and mix of business towards higher end
markets in terms of billing rates and margins.
The Company's industrial contract services gross margin for the nine-month
period ended June 30, 2022 was approximately 15.5% versus approximately 25.2%
for the nine-month period ended June 30, 2021. The decrease in industrial
contract services gross margin is mainly due to the amount of additional premium
refunds in the form of policy distributions the Company's industrial business
was eligible to receive under the Ohio Bureau of Workers' Compensation
retrospectively rated insurance program. Results for the nine-month periods
ended June 30, 2022 and 2021 included $83 and $1,337 of such premium refunds,
respectively. The industrial services gross margins excluding the effects of
these refunds were approximately 14.8% and 14.9% for the nine-month periods
ended June 30, 2022 and 2021, respectively. The decreases in industrial services
revenues and gross margins, excluding the effects of the workers compensation
premium refunds and distributions, is mainly attributable to the industrial
segment being more heavily affected by new COVID-19 variants in the first fiscal
quarter of 2022. As indicated above, the industrial services margins improved
during the most recent quarter ended June 30, 2022, due in part to price
increases associated with wage increases necessary to attract or retain contract
services employees and the resulting increased spreads and margins.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") include the following
categories:
· Compensation and benefits in the operating divisions, which includes
salaries, wages, and commissions earned by the Company's employment
consultants, recruiters, and branch managers on permanent and temporary
placements;
· Administrative compensation, which includes salaries, wages, payroll taxes
and employee benefits associated with general management and the operation
of corporate functions, including principally, finance, human resources,
information technology and administrative functions;
· Occupancy costs, which includes office rent, depreciation and
amortization, and other office operating expenses;
· Recruitment advertising, which includes the cost of identifying and
tracking job applicants;
· Other selling, general and administrative expenses, which includes travel,
bad debt expense, fees for outside professional services, and other
corporate-level expenses such as business insurance and taxes.
· The Company's SG&A for the nine-month period ended June 30, 2022 increased
by $7,668 as compared to the nine-month period ended June 30, 2021. SG&A
for the nine-month period ended June 30, 2022, as a percentage of
revenues, were approximately 30% compared to approximately 28% for the
nine-month period ended June 30, 2021. In addition to overall growth of
the business, resulting in additional incentive compensation and bonuses,
the increase in SG&A expenses and ratios were affected by an increase of
$413 in bad debt expense associated with one of the Company's light
industrial customers, a legal settlement of $975, and charges associated
with severance agreements totaling $838.
SG&A includes certain non-cash costs and expenses incurred related to
acquisition, integration and restructuring and other non-recurring activities,
such as certain corporate legal and general expenses associated with capital
markets activities that either are not directly associated with core business
operations or have been eliminated on a going forward basis. These costs were
estimated to be $1,871 and $340 for the nine-month periods ended June 30, 2022
and 2021, respectively, and include the legal settlement and severance
agreements described above, which contributed $975 and $838, respectively, to
these costs for the nine-month period ended June 30, 2022.
Depreciation Expense
Depreciation expense was $276 and $228 for the nine-month periods ended June 30,
2022 and 2021, respectively. The increase in depreciation expense is due to
fixed assets additions.
Amortization Expense
Amortization expense was $2,749 and $3,074 for the nine-month periods ended June
30, 2022 and 2021, respectively. The decrease is due to intangible assets
related to certain non-compete agreements and trade names becoming fully
amortized since June 30, 2021.
Goodwill Impairment
The Company completed its most recent annual goodwill impairment assessment, as
of September 30, 2021, and determined that its goodwill was not impaired. The
amount of discount inherent in the Company's market capitalization as recently
reported on the NYSE American exchange when compared with consolidated
stockholders' equity, or net book value, has increased since September 30, 2021;
therefore, the Company performed an interim assessment of its goodwill for
impairment as of December 31, 2021. The estimated fair values of its
Professional Services and Industrial Services reporting units were adjusted
based on qualitative and quantitative analysis so that they reconcile more
precisely with the Company's market capitalization as of December 31, 2021, plus
an assumed control premium. As a result, the Company recognized a non-cash
impairment charge of $2,150 during the three-month period ended December 31,
2021. The Company reassessed its qualitative and quantitative analysis of
goodwill for impairment as of June 30, 2022 and, as a result, no additional
impairment charge was taken.
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Income from Operations
Income from operations decreased by $258 for the nine-month period ended June
30, 2022 compared to the nine-month period ended June 30, 2021. The decrease is
due to factors described above, including notably, increases of $413 in bad debt
expense associated with one of the Company's light industrial customers, a legal
settlement of $975, and charges associated with severance agreements totaling
$838 during the nine-month period ended June 30, 2022. Additionally, the
non-cash goodwill impairment charge of $2,150 taken during the nine-month period
ended June 30, 2022 offset increases in income from operations during the
period.
Interest Expense
Interest expense was $301 for the nine-month period ended June 30, 2022, which
decreased by $5,458 compared to the nine-month period ended June 30, 2021. The
decrease in interest expense is mainly attributable to the interest expense
related to the Former Credit Agreement that was included in the nine-month
period ended June 30, 2021. The Company's Former Credit Agreement contributed
$4,684 in cash interest expense and $890 in amortization of capitalized and
other debt related costs during the nine-month period ended June 30, 2021. On
April 20, 2021, the Company repaid its remaining principal and accrued interest
balances under its Former Credit Agreement, after which time interest expense
ceased to accrue.
Provision for Income Taxes
The Company recognized a tax expense (benefit) of $59 and $(307) for the
nine-month periods ended June 30, 2022 and 2021, respectively. Our effective tax
rate for the nine-month periods ended June 30, 2022 and 2021 is lower than the
statutory rate primarily due to the effect of the valuation allowance on the net
DTA position. Other than the deferred tax liability relating to indefinite lived
asset, the Company is maintaining a valuation allowance against the remaining
net DTA position. In addition, during the nine-month periods ended June 30, 2022
and 2021, the Company recognized non-taxable gains of $16,773 and $2,236,
respectively, as discrete items from forgiveness and extinguishment of the
Company's PPP loans. The Company also incurred a discrete charge in the form of
a noncash goodwill impairment charge of $2,150 during the nine-month period
ended June 30, 2022.
Net Income (Loss)
The Company's net income (loss) was $20,388 and $(2,987) for the nine-month
periods ended June 30, 2022 and 2021, respectively. The increase is primarily
due to gains of $16,773 from forgiveness and extinguishment of the Company's
remaining PPP loans during the nine-month period ended June 30, 2022 and the
growth in revenues and gross profit discussed above. These were offset to an
extent by an increase in bad debt expense of $413, a legal settlement of $975,
charges associated with severance agreements of $838, and the non-cash goodwill
impairment charge of $2,150.
The Company continues to seek opportunities to increase revenue and closely
manage costs, including opportunities to selectively add revenue producing
resources in key markets and industry verticals. The Company also seeks to
organically grow its professional contract services revenue and direct hire
placement revenue, including business from staff augmentation, permanent
placement, statement of work (SOW) and other human resource solutions in the
information technology, engineering, healthcare and finance and accounting
higher margin staffing specialties. The Company's strategic plans to achieve
this goal involve setting aggressive new business growth targets, initiatives to
increase services to existing customers, increasing its numbers of revenue
producing core professionals, including primarily, business development managers
and recruiters, and assessments of the effectiveness of compensation, commission
and bonus plans to identify enhancements to incentivize producers. Senior
management also has frequent interaction with the field and facilitates
collaboration among brands and locations to identify and share growth
opportunities, and to monitor and motivate growth. The Company's strategic plan
contains both internal and acquisition growth objectives to increase revenue in
the aforementioned higher margin and more profitable professional services
sectors of staffing.
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Liquidity and Capital Resources
The primary sources of liquidity for the Company are revenues earned and
collected from its clients for the placement of contractors and permanent
employment candidates and borrowings available under its current and former
asset-based senior secured revolving credit facilities. Uses of liquidity
include primarily the costs and expenses necessary to fund operations, including
payment of compensation to the Company's contract and permanent employees and
employment-related expenses, operating costs and expenses, taxes, and capital
expenditures.
The following table sets forth certain consolidated statements of cash flows
data:
Nine Months
Ended June 30,
2022 2021
Cash flows provided by (used in) operating activities $ 7,818 $ (2,276 )
Cash flows used in investing activities
$ (225 ) $ (68 )
Cash flows used in financing activities $ - $ (4,371 )
As of June 30, 2022, the Company had $17,540 of cash, which was an increase of
$7,593 from $9,947 as of September 30, 2021. The significant increase in cash
flows from operating activities is primarily the result of the elimination of
cash interest expense on the Company's high-cost Former Credit Agreement, which
was fully repaid and retired on April 20, 2021. As of June 30, 2022, the Company
had working capital of $26,521 compared to $2,528 of working capital as of
September 30, 2021. The substantial increase in working capital is mainly
attributable to the generation of free cash flow of $7,593, and the forgiveness
of the Company's last remaining PPP loans and interest during the nine-month
period ended June 30, 2022, which were reflected in current liabilities in the
aggregate amount of $16,741 as of September 30, 2021.
Net cash provided by (used in) operating activities for the nine-month periods
ended June 30, 2022 and 2021 was $7,818 and $(2,276), respectively. The positive
operating cash flow in the nine-month period ended June 30, 2022 corresponds
with the increase in net income and other net changes in working capital.
The primary uses of cash for investing activities were for the acquisition of
property and equipment in the nine-month periods ended June 30, 2022 and 2021.
Cash flows used in financing activities for the nine-month period ended June 30,
2021 totaled $4,371. This activity was primarily attributable to the net effect
of the transactions described below, including the net proceeds from a follow-on
securities offering and a new credit facility and payments on the Former Credit
Agreement. There were no cash flows used in financing activities for the
nine-month period ended June 30, 2022.
On April 19, 2021, the Company completed the initial closing of a follow-on
public offering of 83,333 shares of common stock at a public offering price of
$0.60 per share. Gross proceeds of the offering totaled $50,000, which after
deducting the underwriting discount, legal fees, and offering expenses, resulted
in net proceeds of $45,478. On April 27, 2021, the underwriters of the Company's
April 19, 2021, public offering exercised in full their 15% over-allotment
option to purchase an additional 12,500 common shares (the "option shares") of
the Company at the public offering price of $0.60 per share. The Company closed
the transaction on April 28, 2021 and received net proceeds from the sale of the
option shares of approximately $6,937, after deducting the applicable
underwriting discount.
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On April 20, 2021, as the result of the completion of the public offering, the
Company repaid $56,022 in aggregate outstanding indebtedness under the Former
Credit Agreement, including accrued interest, using the net proceeds of its
underwritten public offering and available cash. The repaid debt was originally
obtained from investors led by MGG Investment Group LP ("MGG") on April 21, 2017
and had a maturity date of June 30, 2023. The MGG debt was comprised of a
revolving credit facility with a principal balance on the date of repayment of
approximately $11,828, which was subject to an annual interest rate comprised of
the greater of the London Interbank Offering Rate ("LIBOR") or 1%, plus a 10%
margin (approximately 11% per annum), and a term loan with a principal balance
on the date of repayment of approximately $43,735, which was subject to an
annual interest rate of the greater of LIBOR or 1% plus a 10% margin. The term
loan also had an annual payment-in-kind ("PIK") interest rate of 5% in addition
to its cash interest rate, which was being added to the term loan principal
balance (cash and PIK interest rate combined of approximately 16% per annum).
Accrued interest of approximately $459 was paid in connection with the principal
repayments. The Company took a one-time charge of $4,004 which represents
unamortized debt issue costs associated with its Former Credit Agreement.
On May 14, 2021, GEE Group Inc. and its subsidiaries, Agile Resources, Inc.,
Access Data Consulting Corporation, BMCH, Inc., GEE Group Portfolio, Inc.,
Paladin Consulting, Inc., Scribe Solutions, Inc., SNI Companies, Inc., Triad
Personnel Services, Inc., and Triad Logistics, Inc. entered a Loan, Security and
Guaranty Agreement for a $20 million asset-based senior secured revolving credit
facility with CIT Bank, N.A. (the "CIT Facility"). The CIT Facility is
collateralized by 100% of the assets of the Company and its subsidiaries who are
co-borrowers and/or guarantors. The CIT Facility matures on the fifth
anniversary of the closing date (May 14, 2026). Concurrent with the May 14, 2021
closing of the CIT Facility, the Company initially borrowed $5,326 and utilized
these funds to pay all remaining unpaid Exit and Restructuring Fees due to its
former senior lenders in the amount of $4,978, with the remainder going to
direct fees and costs associated with the CIT Facility.
Under the CIT Facility, advances will be subject to a borrowing base formula
that is computed based on 85% of eligible accounts receivable of the Company and
subsidiaries as defined in the CIT Facility, and subject to certain other
criteria, conditions, and applicable reserves, including any additional
eligibility requirements as determined by the administrative agent. The CIT
Facility is subject to usual and customary covenants and events of default for
credit facilities of this type. The interest rate, at the Company's election,
will be based on either the Base Rate, as defined, plus the applicable margin;
or the London Interbank Offering Rate ("LIBOR" or any successor thereto) for the
applicable interest period, subject to a 1% floor, plus the applicable margin.
The CIT Facility also contains provisions addressing the potential future
replacement of LIBOR utilized and referenced in the loan agreement, in the event
LIBOR becomes no longer available. In addition to interest costs on advances
outstanding, the CIT Facility will provide for an unused line fee ranging from
0.375% to 0.50% depending on the amount of undrawn credit, original issue
discount and certain fees for diligence, implementation, and administration.
The Company had approximately $14,317 in availability for borrowings as of June
30, 2022. There were no outstanding borrowings outstanding on the CIT Facility
as of June 30, 2022, or September 30, 2021, except for certain accrued carrying
fees and costs, which are included in other current liabilities in the
accompanying consolidated balance sheets.
All the Company's office facilities are leased. Minimum lease payments under all
the Company's lease agreements for the twelve-month period commencing after the
close of business on June 30, 2022, are approximately $1,619. There are no
minimum debt service principal payments due during the twelve-month period
commencing after the close of business on June 30, 2022.
Management believes that the Company has adequate cash and working capital and
can generate adequate liquidity to meet its obligations for the foreseeable
future and at least for one year after the date this Quarterly Report on Form
10-Q is filed.
Coronavirus Pandemic ("COVID-19"), Paycheck Protection Program Loans and
Deferral of Federal Payroll Taxes under the CARES Act
In approximately mid-March 2020, the Company began to experience the severe
negative effects of the economic disruptions resulting from COVID-19. These
included abrupt reductions in demand for the Company's primary sources of
revenue, its temporary and direct hire placements, lost productivity due to
business closings both by clients and at the Company's own operating locations,
and the significant disruptive impacts to many other aspects of normal
operations. Some effects of COVID-19 and the subsequent variants of the virus
continue to be felt, although to lesser extent, with the most severe impacts
being felt in the commercial (Industrial) segment and, to a lesser extent, in
the finance, accounting and office clerical ("FAO") contract staffing services
end markets within the professional segment.
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Between April 29 and May 7, 2020, the Company and eight of its operating
subsidiaries obtained loans in the aggregate amount of $19,927 from BBVA USA
(now known as PNC Bank), as lender, pursuant to the Paycheck Protection Plan
(the "PPP"), which was established under the Coronavirus Aid, Relief, and
Economic Security Act (the "CARES Act") and administered by the U.S. Small
Business Administration ("SBA"). These funds were the only source of financing
available to our companies and businesses and were critical to our ability to
maintain operations, including the employment of our temporary and full-time
employees, in order to provide our services and meet our liquidity requirements
in the midst of the worldwide Coronavirus Pandemic. The PPP loans were
recognized as current debt in the Company's accompanying unaudited condensed
consolidated financial statements as of September 30, 2021.
The Company and its operating subsidiaries have been granted forgiveness of
their respective outstanding PPP loans, including the Company's last four
remaining PPP loans and interest for GEE Group Inc., BMCH, Inc., Paladin
Consulting, Inc., and SNI Companies, Inc., in the amounts of $2,024, $2,630,
$1,956, and $10,163, respectively, which were forgiven by the SBA in December
2021. The Company recognized net gains of $16,773, in aggregate, during the
nine-month period ended June 30, 2022 as a result of the forgiveness of its last
four PPP loans.
The PPP loans obtained by GEE Group Inc., and its operating subsidiaries
together as an affiliated group, have exceeded the $2,000 audit threshold
established by the SBA, and therefore, also will be subject to audit by the SBA
in the future. If any of the nine forgiven PPP loans are reinstated in whole or
in part as the result of a future audit, a charge or charges would be incurred,
accordingly, and they would need to be repaid. If the companies are unable to
repay the portions of their PPP loans that ultimately may be reinstated from
available liquidity or operating cash flow, we may be required to raise
additional equity or debt capital to repay the PPP loans.
The Company and its subsidiaries, under the CARES Act, also were eligible to
defer paying $3,654, in aggregate, of applicable payroll taxes incurred during
fiscal 2020. The deferred deposits of the employer's share of Social Security
tax are required be paid to be considered timely (and avoid a failure to deposit
penalty) by December 31, 2021, fifty (50) percent of the eligible deferred
amount, and the remaining amount by December 31, 2022. During the nine-month
period ending June 30, 2022, the first payments on these deferred amounts were
made totaling $1,827, in aggregate. The remaining deferred amounts are included
in short-term liabilities on the accompanying unaudited condensed consolidated
financial statements.
Off-Balance Sheet Arrangements
As of June 30, 2022, there were no transactions, agreements or other contractual
arrangements to which an unconsolidated entity was a party, under which the
Company (a) had any direct or contingent obligation under a guarantee contract,
derivative instrument or variable interest in the unconsolidated entity, or
(b) had a retained or contingent interest in assets transferred to the
unconsolidated entity.
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