GEE : Conference Call Transcript Q2 2023

GEE Group Inc. (NYSE American: JOB) Fiscal Second Quarter Ended March 31, 2023

Earnings and Update Webcast Conference Call: Prepared Remarks

Wednesday, May 17, 2023, 11:00 AM EDT

Audience Event Link:

https://event.webcasts.com/starthere.jsp?ei=1615164&tp_key=ad4d528d06

Company Participants

Derek Dewan - Chairman and Chief Executive Officer

Kim Thorpe - Senior Vice President and Chief Financial Officer

Intro - Derek Dewan

Hello, and welcome to the GEE Group fiscal 2023 second quarter ended March 31, 2023 earnings and update webcast conference call. I'm Derek Dewan, Chairman and Chief Executive Officer of GEE Group, and will be hosting today's call. Joining me as a co-presenter is Kim Thorpe, our Senior Vice President and Chief Financial Officer. Thank you for joining us today.

Derek Dewan

It is our pleasure to share with you GEE Group's results for the 2023 fiscal second quarter ended March 31, 2023, and provide you with our outlook for the remainder of the 2023 fiscal year 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. These represent our current judgments of what the future holds and are subject to risks and uncertainties that actual results may differ materially from our forward-looking statements. These risks and uncertainties are described below under the caption, "Forward-Looking Statements Safe Harbor" and in Monday's earnings press release and our most recent Form 10-Q,10-K and other SEC filings under the captions, "Cautionary Statement Regarding Forward Looking Statements" and, "Forward-Looking Statements Safe Harbor". We assume no obligation to update statements made on today's call.

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GEE Group Inc. (NYSE American: JOB) Fiscal Second Quarter Ended March 31, 2023

Earnings and Update Webcast Conference Call: Prepared Remarks

Wednesday, May 17, 2023, 11:00 AM EDT

Audience Event Link:

https://event.webcasts.com/starthere.jsp?ei=1615164&tp_key=ad4d528d06

During this presentation, we also will 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.

We once again achieved very good results in the fiscal 2023 second quarter beginning with consolidated revenues of $38.9 million. Our consolidated gross profit and gross margin were $13.2 million, and 34.0%, respectively. Our consolidated non-GAAP adjusted EBITDA for the fiscal 2023 second quarter was $1.7 million. We achieved consolidated net income of $.7 million or $0.01 per diluted share, for our fiscal 2023 second quarter. As Kim will explain further, the prior fiscal year's second quarter results were well above normal due to much higher than expected demand for direct hire placement services and a significant amount of higher margin, non- recurring COVID-19-related project work. While the fiscal 2022's second quarter performance was outstanding, the current fiscal second quarter still compares favorably, taking into account the discreet opportunities present in last year's second quarter, and particularly in terms of the double digit growth achieved in our combined professional IT contract businesses in the fiscal 2023 second quarter.

Before I turn it over to Kim, I want to say "thank you" to our wonderful dedicated people. They work extremely hard every day to insure that our clients get the very best service. They are the key

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GEE Group Inc. (NYSE American: JOB) Fiscal Second Quarter Ended March 31, 2023

Earnings and Update Webcast Conference Call: Prepared Remarks

Wednesday, May 17, 2023, 11:00 AM EDT

Audience Event Link:

https://event.webcasts.com/starthere.jsp?ei=1615164&tp_key=ad4d528d06

factor in the outstanding performance GEE Group achieved in fiscal 2022, and so far in fiscal 2023, and will continue to be the most important driver of our Company's future success.

At this time, I'll turn the call over to our CFO, Kim Thorpe, who will further elaborate on our fiscal 2023 second quarter results. Kim.

Kim Thorpe

Thank you, Derek, and good morning. Once again, consolidated revenue for the fiscal 2023 second quarter was $38.9 million, which is $.7 million, or 2% lower, compared with the fiscal 2022 second quarter revenue of $39.6 million. As Derek mentioned, our fiscal 2022 second quarter included above average performance in direct hire placement revenue, as well as professional contract services revenue generated from non-recurring, higher margin COVID-19 projects for clients serving as COVID-19 responders. Excluding the effects of certain discreet (non-recurring) projects for professional staffing support provided to former COVID-19 response vaccination and testing facilities, which generated $.835 million and $3.2 million in professional contract services revenue in the three-month and six-month periods ended March 31, 2022, professional contract services revenues would have increased $1.6 million, or 5%, during the fiscal second quarter ended March 31, 2023, and $3.1 million, or 5%, during the first half of fiscal 2023, over the comparable 2022 fiscal second quarter and first half, respectively.

Professional and industrial contract staffing services revenues for fiscal 2023's second quarter were $34.0 million, which is $.231 million, or 1% higher, as compared to fiscal 2022's second quarter contract staffing services revenue. Professional contract services revenue, which

represents 91% of all contract services revenue and 79% of consolidated revenue, increased $1.6

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GEE Group Inc. (NYSE American: JOB) Fiscal Second Quarter Ended March 31, 2023

Earnings and Update Webcast Conference Call: Prepared Remarks

Wednesday, May 17, 2023, 11:00 AM EDT

Audience Event Link:

https://event.webcasts.com/starthere.jsp?ei=1615164&tp_key=ad4d528d06

million, or 5%, quarter over quarter, excluding the effects of the nonrecurring COVID-19-related projects revenue. The bright spot in our contract services revenue growth was our professional IT contract services revenue, which grew 11% quarter over quarter and is up 13% in the first half of fiscal 2023 over fiscal 2022's first half. IT contract services represented 60% of all professional services contract revenue in the March 2023 quarter. IT direct hire and contract services revenue represented 50% of consolidated revenue, and is our highest priority growth specialty.

The increases in our quarter over quarter professional contract staffing services revenues, and in our professional IT contract staffing services sector, in particular, are the result of increasing demand and our ability to adapt and meet this demand in the new post-COVID-19 U.S. economy and workforce environments. Two recent indicators, the outstanding jobs report and, in contrast, recent significant lay-offs of IT professionals by larger employers, also are positive indicators for the remainder of fiscal 2023. Rising employment suggests increasing demand for our services, while recent IT corporate downsizing actions mean more IT candidates available to fill demand.

Direct hire placement revenue for the fiscal 2023 second quarter was $4.9 million, down $1.0 million, or 17%, compared with the fiscal 2022 second quarter revenue of $5.9 million. As indicated in our press release, fiscal 2022 was a record high year for direct hire placement services for us and our March 2022 quarter set a record as our highest March quarter ever for direct hire placement services. Our direct hire placement revenue for the first half of 2023 was $10.6 million. Although not as robust as 2022's performance, we are pleased with this level of direct hire placement production and, despite the macroeconomic environment and potential headwinds,

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GEE Group Inc. (NYSE American: JOB) Fiscal Second Quarter Ended March 31, 2023

Earnings and Update Webcast Conference Call: Prepared Remarks

Wednesday, May 17, 2023, 11:00 AM EDT

Audience Event Link:

https://event.webcasts.com/starthere.jsp?ei=1615164&tp_key=ad4d528d06

remain cautiously optimistic about our overall direct hire placement revenue potential for fiscal 2023.

Industrial staffing services revenues were $3.2 million and represented 8% of total revenue for fiscal 2023's second quarter ended March 31, 2023. We continue to experience growth challenges in our light industrial markets, which we attribute to the continued presence of some COVID-19 and unemployment relief programs available to the workers in Ohio which causes them to not seek employment. Recent inflation also has led us to increase hourly wages and benefits for contingent workers in our light industrial business in Ohio. We believe this motivates some of our light industrial temporary workers to seek to moderate or reduce their work hours in order to balance income streams in favor of preserving their government subsidized benefits which they may lose if their income is too high. This, in turn, tends to increase competition among staffing firms in Ohio for laborers to fill temporary staffing job orders. We are actively introducing new sales and recruiting programs to attract candidates and restore growth in our industrial business, as well as implementing price increases, where possible, to mitigate the impact of inflation.

Gross profit for the fiscal 2023 second quarter was $13.2 million, down $1.3 million, or 9%, compared with fiscal 2022 second quarter gross profit of $14.5 million. Our overall gross margins were 34.0% and 36.6% for the fiscal 2023 and 2022 second quarters, respectively. The declines in gross profit and gross margin are mainly attributable to lower direct hire placement business, which has 100% gross margin. On the contract side, increases in contractor pay associated with recent inflation also have resulted in some spread compression within our professional services businesses. The Company has recently stepped up counter-inflationary increases in mark-ups, bill

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