Overview
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
light 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") significantly expanded our geographical
footprint within the placement and contract staffing of information technology,
accounting, finance, office and engineering professionals.
The Company markets its services using the trade names General Employment, Omni
One, Ashley Ellis, Agile Resources, Scribe Solutions Inc., Access Data
Consulting Corporation, Paladin Consulting Inc., SNI Companies, Inc., (including
Staffing Now, Accounting Now, and Certes), Triad Personnel Services and Triad
Staffing. As of June 30, 2021, we operated twenty-seven branch offices in
downtown or suburban areas of major U.S cities in eleven states and additional
local staff members working remotely serving four additional U.S. locations. We
have offices or serve markets remotely in each of Connecticut, Georgia,
Minnesota, New Jersey, and Virginia, two offices each in Illinois and
Massachusetts, three offices in Colorado, three offices and two additional local
market presences in Texas, five offices and two additional local market
presences in Florida, and seven offices in Ohio.
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 the issuance of equity and 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.
In approximately mid-March 2020, the Company began to experience the severe
negative effects of the economic disruptions resulting from the COVID-19
pandemic. These have 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. These effects have been and continue to be felt across all
businesses, with the most severe impacts being felt in the industrial and
finance, accounting, and office clerical ("FA&O) end markets within the
professional segment. In response to the crisis, in April 2020 we took a series
of proactive actions including a 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 Payroll
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 recover to a significant
extent during nine-month period ended June 30, 2021, as compared with prior
sequential quarters since the quarter ended June 30, 2020. While we remain
optimistic about our prospects for continuing recovery to pre-COVID-19 levels of
results and performance, the rate of such recovery is still somewhat uncertain
and could be delayed, for example, by potential resurgences and negative impacts
of COVID-19 or variants on the U.S. economy and the specific markets and clients
we serve in the future.
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Results of Operations
Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30,
2020
Net Revenues
Consolidated net revenues are comprised of the following:
Three Months
Ended June 30,
(in thousands) 2021 2020 Change Change
Professional contract services $ 28,747 $ 20,595 $ 8,152 40 %
Industrial contract services 3,792 2,898 894 31 %
Total professional and industrial
contract services 32,539 23,493 9,046 39 %
Direct hire placement services 5,529 3,101 2,428 78 %
Consolidated net revenues $ 38,068 $ 26,594 $ 11,474 43 %
Contract staffing services contributed $32,539, or approximately 85%, of
consolidated revenue and increased by $9,046, or approximately 39%, for the
three-month period ended June 30, 2021, as compared with the comparable period
ended June 30, 2020. Direct hire placement services contributed $5,529, or
approximately 15%, of consolidated revenue for the three-month period ended June
30, 2021 and were up $2,428, or approximately 78%, as compared with the
comparable three-month period ended June 30, 2020. Contract staffing services
revenue was $23,493, or approximately 88%, of consolidated revenue and direct
hire placement revenue was $3,101, or approximately 12%, of consolidated revenue
for the three-month period ended June 30, 2020.
The overall increase in contract staffing services revenues of $9,046, or 39%,
for the three-month period ended June 30, 2021 compared to the three-month
period ended June 30, 2020 was primarily attributable to recovery and
improvement in professional contract services markets from the negative effects
of the COVID-19 pandemic beginning approximately in the month of June 2020. The
onset of COVID-19 resulted in a near immediate decline in demand for our
staffing services due to client closures, postponements in projects and related
needs for our services at some clients, significant travel restrictions, and
corresponding decreases in the volume of contract services billable hours.
Professional contract services have experienced consistent recovery through this
quarter resulting in the revenue increase of $8,152 for the three-month period
ended June 30, 2021, as compared with the three-month period ended June 30,
2020. Management believes this trend is the result of U.S. economic recovery, as
well as actions taken by the Company to adapt to COVID-19, hire top talent, and
position the Company for recovery and growth. Industrial contract services
revenue experienced improvement this quarter due to continuing recovery and
improvement from negative impacts related to COVID-19, including most recently,
a workforce shortage being felt across the U.S. and widely believed to be
attributable to recent and plentiful economic stimulus and unemployment
benefits, as well as school and other shutdowns.
Direct hire placement revenue for the three-month period ended June 30, 2021
increased by $2,428, or approximately 78%, over the three-month period ended
June 30, 2020, driven by an increase in number of placements. Demand for the
Company's direct hire services increased due to the continuing recovery and
significant improvement from the negative effects of the COVID-19 pandemic
beginning in approximately June 2020.
Management believes that the underlying trends toward significant recovery since
May 2020 are generally consistent with the recovery experienced in the overall
U.S. economy so far and, therefore, may be expected to continue, accordingly.
The Company continues to observe, analyze and make modifications and changes to
its business model and practices on a routine basis in response to the on-going
COVID-19 pandemic and related health and safety concerns. These include, but are
not limited to, implementation of policies and procedures in observance of
Federal, state and/or local guidelines regarding the coronavirus, including
matters such as working from home, use of personal protective equipment
(principally, protective masks), social distancing, personal hygiene and
sanitary practices, and other preventative and responsive measures, impacting
both our core human resources, as well as our contract laborers serving clients.
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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, 2021 increased by
approximately 43% to $24,242 compared to $16,925 for the three-month period
ended June 30, 2020. The $7,317 overall increase in cost of contract services
for the three-month period ended June 30, 2021 compared to the three-month
period ended June 30, 2020 was attributable to the corresponding increase in
contract service revenues.
Gross Profit percentage by service:
Three Months
Ended June 30,
2021 2020
Professional contract services 27 % 27 %
Industrial contract services 15 % 37 %
Professional and industrial services combined 26 % 28 %
Direct hire placement services 100 % 100 %
Combined gross profit margin % (1) 36 % 36 %
____________
(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 period ended June
30, 2021 and 2020, was approximately 36% each. In the professional contract
services, the gross margin (excluding direct hire placement services) was
approximately 27% for three-month period ended June 30, 2021 and 2020 each.
The Company's industrial contract services gross margin for the three-month
period ended June 30, 2021 was approximately 15% versus approximately 37% for
the three-month period ended June 30, 2020. The decrease in industrial contract
services gross margin is due to a decrease in the amount of premium refunds the
Company's industrial business is eligible to receive under the Ohio Bureau of
Workers' Compensation retrospectively-rated insurance program. The industrial
contract services gross margins normalized for the effects of these items were
approximately 15% and 13% for the three months ended June 30, 2021 and 2020,
respectively. The increase after adjustment to remove the effect of the workers
compensation premium refunds is primarily attributable to increased bill rates
and a decrease in premium charges related to workers compensation for the
three-month period ended June 30, 2021.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include the following categories:
• Compensation and benefits in the operating divisions, which includes
salaries, wages, and commissions earned by the Company's employment
consultants 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 the finance, legal, human resources and information
technology functions.
• Occupancy costs, which includes office rent, depreciation and
amortization, and other office operating expenses.
• Recruitment advertising, which includes the cost of identifying 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.
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The Company's SG&A for the three-month period ended June 30, 2021, increased by
$905 as compared to the three-month period ended June 30, 2020. SG&A for the
three-month period ended June 30, 2021, as a percentage of revenues, was
approximately 29% compared to approximately 38% for the three-month period ended
June 30, 2020. The decrease in SG&A expenses as a percentage of revenue is
primarily attributable to the significant recovery and improvement in revenues
discussed earlier and Company's efforts to manage costs effectively.
SG&A also includes certain non-cash costs, expenses incurred related to
acquisition, integration and restructuring, non-recurring items, such as certain
corporate legal and general expenses associated with capital markets activities
that either are not directly associated with core business operations, and/or
other items that have been eliminated on a going forward basis and/or are of an
isolated, non-recurring nature. These costs were estimated to be $159 and $1,557
for the three-month periods ended June 30, 2021 and 2020, respectively, and
include mainly expenses associated with former closed and consolidated
locations, and former personnel costs associated with eliminated positions.
Depreciation Expense
Depreciation expense was $78 and $33 for the three-month period ended June 30,
2021, and 2020, respectively. The increase is due to the fixed assets additions.
Amortization Expense
Amortization expense was $1,015 and $1,125 for the three-month period ended June
30, 2021 and 2020, respectively. The decrease is due to certain SNI intangible
assets related to non-compete agreements that have become fully amortized as of
March 31, 2020.
Income from Operations
The income from operations increased by $3,317 for the three-month period ended
June 30, 2021 compared to the three-month period ended June 30, 2020. The
increase is due to the factors described above including a significant
improvement and recovery in revenues and the Company's mitigating efforts
beginning in approximately mid-March 2020 to restore and grow revenues, and to
manage costs effectively to adapt to the COVID-19 pandemic and position the
Company for recovery.
Interest Expense
Interest expense was $539 for the three-month period ended June 30, 2021, which
decreased by $2,795 compared to the three-month period ended June 30, 2020. The
decrease in interest expense for the three-month period ended June 30, 2021 is
mainly attributable to the interest expense related to the former Senior Credit
Agreement, 9.5% Notes, and 10% Notes that were included in the three-month
period ended June 30, 2020. The Company's former Senior Credit Agreement
contributed $459 and $2,093 the three-month period ended June 30, 2021 and June
30, 2020, respectively. On April 20, 2021, the Company retired and fully repaid
its remaining principal and accrued interest balances under its former Senior
Credit Agreement.
Provision for Income Taxes
The Company recognized a tax benefit of $29 for the three-month period ended
June 30, 2021. Our effective tax rate for the three-month periods ended June 30,
2021 and 2020, were lower than the statutory tax rate primarily due to an
increase in the deferred tax liability related to indefinite lived assets. Other
than the deferred tax liability relating to indefinite lived asset, the Company
is maintaining a valuation allowance against the remaining net DTA position.
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Net (Loss) Income
The Company's net (loss) income was $(937) and $7,195 for the three-month
periods ended June 30, 2021 and 2020, respectively. The decrease in net income
is primarily attributable to gains recognized of $12,316 on extinguishment of
subordinated debt during the three-month period ended June 30, 2020. In addition
to the changes discussed above gains of $1,957 on the extinguishment of PPP
loans were offset by a loss in the form of a charge off of unamortized debt
costs on a debt extinguishment related to the term loan pay-off in amount of
$4,004 during the three-month period ended June 30, 2021.
On April 19, 2021, the Company raised net proceeds of $45,487 of common equity
capital and on April 20, 2021, repaid all its remaining outstanding principal
and accrued interest balances of $56,022 under its former Senior Credit
Agreement. The Company incurred $459 in interest expense in the accompanying
unaudited condensed consolidated statement of operations for the three-month
period ended June 30, 2021, which obligations have now ceased effective April
21, 2021..
The Company continues to closely manage costs and to pursue opportunities to
selectively increase revenue producing headcount 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, including initiatives to increase services to existing
customers, increasing its numbers of revenue producing core professionals,
including primarily, business development managers and recruiters, changes to
compensation, commission and bonus plans to better incentivize producers, and
frequent interaction with the field to monitor and motivate growth. The
Company's strategy entails both internal and acquisition growth objectives to
increase revenue in the aforementioned higher margin and more profitable
professional services sectors of staffing.
Nine Months Ended June 30, 2021 Compared to the Nine Months Ended June 30, 2020
Net Revenues
Consolidated net revenues are comprised of the following:
Nine Months
Ended June 30,
(in thousands) 2021 2020 Change Change
Professional contract services $ 81,923 $ 73,810 $ 8,113 11 %
Industrial contract services 12,927 13,025 (98 ) -1 %
Total professional and industrial
contract services 94,850 86,835 8,015 9 %
Direct hire placement services 12,579 11,996 583 5 %
Consolidated net revenues $ 107,429 $ 98,831 $ 8,598 9 %
Contract staffing services contributed $94,850 or approximately 88% of
consolidated revenue and were higher by $8,015 for the nine-month period ended
June 30, 2021, as compared with the comparable period ended June 30, 2020.
Direct hire placement services contributed $12,579, or approximately 12%, of
consolidated revenue for the nine-month period ended June 30, 2021 and were up
$583, or approximately 5%, as compared with the comparable period ended June 30,
2020. Contract staffing services revenue was $86,835, or approximately 88%, of
consolidated revenue and direct hire placement revenue was $11,996, or
approximately 12%, of consolidated revenue for the nine-month period ended June
30, 2020.
The overall increase in contract staffing services revenues of $8,015, or 9%,
for the nine-month period ended June 30, 2021 compared to the nine-month period
ended June 30, 2020 was primarily attributable to significant recovery and
improvement in professional contract services markets from the negative effects
of the COVID-19 pandemic beginning in approximately June 2020. The onset of
COVID-19 resulted in a near immediate decline in demand for our staffing
services due to client closures, postponements in projects and related needs for
our services at some clients, significant travel restrictions, and corresponding
decreases in the volume of contract services billable hours. Professional
contract services significantly outperformed their historical trends and
experienced consistent recovery since May 2020 through this quarter resulting in
the revenue increase of $8,113 for the nine-month period ended June 30, 2021, as
compared with the nine-month period ended June 30, 2020. Management believes
this trend is the result of U.S. economic recovery, as well as actions taken by
the Company to adapt to COVID-19, hire top talent, and position the Company for
recovery and growth. Industrial contract services revenue experienced
improvement due to continuing recovery and improvement from negative impacts
related to COVID-19, including most recently, a workforce shortage being felt
across the U.S. and widely believed to be attributable to recent and plentiful
economic stimulus and unemployment benefits, as well as school and other
shutdowns.
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Direct hire placement revenue for the nine-month period ended June 30, 2021
increased by $583, or approximately 5%, over the nine-month period ended June
30, 2020. Demand for the Company's direct hire services increased due to the
continuing recovery and significant improvement from the negative effects of the
COVID-19 pandemic beginning in approximately June 2020.
Management believes that the underlying trends toward recovery since May 2020
are generally consistent with the recovery experienced in the overall U.S.
economy so far and, therefore, may be expected to continue, accordingly. The
Company continues to observe, analyze and make modifications and changes to its
business model and practices on a routine basis in response to the on-going
COVID-19 pandemic and related health and safety concerns. These include, but are
not limited to, implementation of policies and procedures in observance of
Federal, state and/or local guidelines regarding the coronavirus, including
matters ranging working from home, use of personal protective equipment
(principally, protective masks), social distancing, personal hygiene and
sanitary practices, and other preventative and responsive measures, impacting
both our core human resources, as well as our contract laborers serving clients.
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, 2021 increased by
approximately 8% to $70,115 compared to $64,654 for the nine-month period ended
June 30, 2020. The $5,461 overall increase in cost of contract services for the
nine-month period ended June 30, 2021 compared to the nine-month period ended
June 30, 2020 was primarily attributable to the corresponding increase in
revenues, and an increase in additional premium refunds in the form of
policyholder dividends from the Ohio Bureau of Workers' Compensation related to
the Company's industrial business.
Gross Profit percentage by service:
Nine Months
Ended June 30,
2021 2020
Professional contract services 26 % 27 %
Industrial contract services 25 % 20 %
Professional and industrial services combined 26 % 26 %
Direct hire placement services 100 % 100 %
Combined gross profit margin % (1) 35 % 35 %
_______________
(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 nine-month period ended June
30, 2021 and 2020 was approximately 35% each.
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In the professional contract staffing services segment, the gross margin
(excluding direct placement services) was approximately 26% for nine-month
period ended June 30, 2021 compared to approximately 27% for the nine-month
period ended June 30, 2020. This decrease is generally due to shifts in the
amounts and mix of business between end markets and higher and lower billing
rates and margins. Contributing to this 0.3% (300 basis points) decrease is a
disproportionate increase in the mix of lower margin office and clerical
temporary staffing services within the overall COVID-19 business recovery taking
place.
The Company's industrial contract services gross margin for the nine-month
period ended June 30, 2021 was approximately 25% versus approximately 20% for
the nine-month period ended June 30, 2020. The increase in industrial contract
services gross margin is due to the amount of additional premium refunds in the
form of policyholder dividends the Company's industrial business was eligible to
receive under the Ohio Bureau of Workers' Compensation retrospectively-rated
insurance program. Results for the nine months ended June 30, 2021 includes
$1,337 of such premium refunds. The industrial contract services gross margins
excluding the effects of these items were approximately 15% and 14% for the nine
months ended June 30, 2021 and 2020, respectively. The increase, adjusted to
remove the effects of workers compensation premium refunds, is generally within
a reasonable performance range for our Light Industrial segment.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include the following categories:
Compensation and benefits in the operating divisions, which includes
• salaries, wages, and commissions earned by the Company's employment
consultants 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 the finance, legal, human resources and information
technology functions.
• Occupancy costs, which includes office rent, depreciation and
amortization, and other office operating expenses.
• Recruitment advertising, which includes the cost of identifying 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, 2021 decreased by
$4,520 as compared to the nine-month period ended June 30, 2020. SG&A for the
nine-month period ended June 30, 2021, as a percentage of revenues, was
approximately 28% compared to approximately 35% for the nine-month period ended
June 30, 2020. The decrease in SG&A expenses is primarily attributable to the
Company's mitigating efforts to reduce and manage costs to adopt to COVID-19 and
position the Company for recovery and growth. In addition, a provision for
doubtful accounts related to a key customer who filed for a bankruptcy
protection of approximately $1,700, was taken in the form of a charge to income
during March 2020.
SG&A also includes certain non-cash costs, expenses incurred related to
acquisition, integration and restructuring, non-recurring items, such as certain
corporate legal and general expenses associated with capital markets activities
that either are not directly associated with core business operations, and/or
other items that have been eliminated on a going forward basis and/or are of an
isolated, non-recurring nature. These costs were estimated to be $340 and $3,247
for the nine-month periods ended June 30, 2021 and 2020, respectively, and
include mainly expenses associated with former closed and consolidated
locations, and personnel costs associated with eliminated positions.
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Depreciation Expense
Depreciation expense was $228 and $181 for the nine-month period ended June 30,
2021, and 2020, respectively. The increase is attributable to net fixed assets
additions.
Amortization Expense
Amortization expense was $3,074 and $3,921 for the nine-month period ended June
30, 2021 and 2020, respectively. The decrease is due to certain SNI intangible
assets related to non-compete agreements that have become fully amortized during
March 31, 2020.
Income from Operations
The income from operations increased by $8,457 for the nine-month period ended
June 30, 2021 compared to the nine-month period ended June 30, 2020. The
increase is due to the factors described above including an increase in
revenues, a decrease in amortization, recognition of provision for doubtful
accounts related to a key customer who filed for a bankruptcy protection during
March 2020, and the Company's mitigating efforts beginning in approximately
mid-March 2020 to restore and grow revenues, and to manage costs to adapt to the
COVID-19 pandemic and position the Company for recovery and growth.
Interest Expense
Interest expense was $5,759 for the nine-month period ended June 30, 2021, which
decreased by $3,859 compared to the nine-month period ended June 30, 2020. The
decrease in interest expense for the nine-month period ended June 30, 2021 is
mainly attributable to the interest expense related to the former Senior Credit
Agreement, 9.5% Notes, and 10% Notes that were included in the nine-month period
ended March 31, 2020. The Company's former Senior Credit Agreement contributed
$3,595 and $6,888 the nine-month period ended June 30, 2021 and June 30, 2020,
respectively. On April 20, 2021, the Company repaid its remaining principal and
accrued interest balances under its former Senior Credit Agreement, after which
time interest expense ceased to accrue.
Provision for Income Taxes
The Company recognized a tax benefit of $307 for the nine-month period ended
June 30, 2021. Our effective tax rate for the nine-month periods ended June 30,
2021 and 2020, is lower than the statutory tax rate primarily due to an increase
in the deferred tax liability related to indefinite lived assets. In nine-month
period ended June 30, 2021, the statutory changes regarding the deductibility of
PPP loan expenses resulted in the recognition of a $352 discrete item. Other
than the deferred tax liability relating to indefinite lived asset, the Company
is maintaining a valuation allowance against the remaining net DTA position.
Net Loss
The Company's net loss was $(2,987) and $(1,797) for the nine-month periods
ended June 30, 2021 and 2020, respectively. The increase in net loss for the
nine-month periods ended June 30, 2021 is attributable to the factors described
above including recognized gains of $12,316 on extinguishment of subordinated
debt during the nine-month period ended June 30, 2020. In addition to the
changes discussed above, gain of $2,236 on the extinguishment of PPP loans were
offset by a loss in the form of a charge off of unamortized debt costs on a debt
extinguishment related to the term loan pay-off in amount of $4,004 during the
nine-month period ended June 30, 2021.
The Company continues to closely manage costs and to pursue opportunities to
selectively increase revenue producing headcount 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, including initiatives to increase services to existing
customers, increasing its numbers of revenue producing core professionals,
including primarily, business development managers and recruiters, changes to
compensation, commission and bonus plans to better incentivize producers, and
frequent interaction with the field to monitor and motivate growth. The
Company's strategy entails 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,
operating costs and expenses, payment of taxes, payment of interest and
principal under its debit agreements, and capital expenditures.
The following table sets forth certain consolidated statements of cash flows
data:
Nine Months
Ended June 30,
(in thousands) 2021 2020
Cash flows (used in) provided by operating activities $ (2,276 ) $ 245
Cash flows used in investing activities
$ (68 ) $ (105 )
Cash flows (used in) provided by financing activities $ (4,371 ) $ 12,382
As of June 30, 2021, the Company had $7,359 of cash, which was a decrease of
$6,715 from $14,074 as of September 30, 2020. As of June 30, 2021, the Company
had working capital of $5,110 compared to $13,351 of working capital as of
September 30, 2020.
Net cash (used in) provided by operating activities for the nine-month periods
ended June 30, 2021 and 2020 was $(2,276) and $245, respectively. The negative
operating cash flow in the nine-month period ended June 30, 2021 corresponds
with 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, 2021 and 2020.
Cash flow (used in) provided by financing activities for the nine-month period
ended June 30, 2021 and 2020 was $(4,371) and $12,382, respectively. The
decrease during nine-month period ended June 30, 2021 was primarily attributable
to the payment on former Senior Credit Agreement that was offset by the proceeds
received from the public offering. The increase during nine-month period ended
June 30, 2020 was primarily attributable to the net proceeds received from PPP
Loans.
Minimum debt service payments (principal) for the twelve-month period commencing
after the close of business on June 30, 2021, are approximately $10,966. 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, 2021, are approximately $1,777.
The Company experienced net losses for the first nine months of its current
fiscal year, and for its most recent fiscal years ended September 30, 2020 and
2019, which also negatively impacted the Company's ability to generate
liquidity. During much of this period, the Company significantly restructured
its operations, made significant cost reductions, including closing and
consolidating unprofitable locations, eliminating underperforming personnel and
pursuing top talent, implemented strategic management changes, and intensified
focus on stabilizing the business and restoring profitable growth. As a result,
management believes the Company had begun to see its operations and business
stabilize.
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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 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. These effects have continued to be felt across all
businesses, with the most severe impacts being felt in the industrial and
finance, accounting and office clerical (FAO) end markets within the
professional segment.
Between April 29 and May 7, 2020, the Company was able to obtain CARES Act
relief financing under the Paycheck Protection Program ("PPP Loans") for each of
its operating subsidiaries, in the aggregate amount of $19,927. These funds were
the only source of financing available to our companies and businesses and have
been and continue to be absolutely critical to our ability to maintain
operations, including the employment of our temporary and fulltime employees, in
order to produce and meet our foreseeable liquidity requirements in the midst of
this continuing worldwide Coronavirus Pandemic.
On April 19, 2021, the Company concluded its 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. ThinkEquity, a
division of Fordham Financial Management, Inc., acted as sole book-running
manager for the offering.
On April 20, 2021, as the result of the completion of the public offering, the
Company repaid $56,022 in aggregate outstanding indebtedness under its existing
Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017,
including accrued interest, using the net proceeds of its recent 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 one time charge of $4,004 which represents
unamortized debt issue costs associated with its former senior debt.
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 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 will be 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.
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.
Management believes that the Company can generate adequate liquidity to meet its
obligations for the foreseeable future or at least for the following twelve
months assuming the negative economic effects of COVID-19 do not worsen, and
that economic recovery occurs.
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Off-Balance Sheet Arrangements
As of June 30, 2021, 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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