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
Enterprises, 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 March 31, 2021, we operated thirty-one branch
offices in downtown or suburban areas of major U.S. cities in eleven states. We
have one office located in each of Connecticut, Georgia, Minnesota, New Jersey,
and Virginia, three offices in Colorado, two offices in Illinois and
Massachusetts, five offices in Texas, seven offices each in Ohio and Florida.
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 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,
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 commercial
(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 six-month period ended March 31, 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 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 March 31, 2021 Compared to the Three Months Ended March 31,
2020
Net Revenues
Consolidated net revenues are comprised of the following:
Three Months
Ended March 31,
(in thousands) 2021 2020 Change Change
Professional contract services $ 27,040 $ 25,794 $ 1,246 5 %
Industrial contract services 4,023 4,471 (448 ) -10 %
Total professional and industrial
contract services 31,063 30,265 798 3 %
Direct hire placement services 3,655 4,416 (761 ) -17 %
Consolidated net revenues $ 34,718 $ 34,681 $ 37 0 %
Contract staffing services contributed $31,063, or approximately 89%, of
consolidated revenue and were up by $798, or approximately 3%, for the
three-month period ended March 31, 2021, as compared with the comparable period
ended March 31, 2020. Direct hire placement services contributed $3,655, or
approximately 11%, of consolidated revenue for the three-month period ended
March 31, 2021, and were down $761, or approximately 17%, as compared with the
comparable three-month period ended March 31, 2020. Contract staffing services
revenue was $30,265, or approximately 87%, of consolidated revenue and direct
hire placement revenue was $4,416, or approximately 13%, of consolidated revenue
for the three-month period ended March 31, 2020.
The overall increase in contract staffing services revenues of $798, or 3%, for
the three-month period ended March 31, 2021 compared to the three-month period
ended March 31, 2020 was primarily attributable to 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. The Company experienced the
majority, but not all, of these contract staffing services reductions in its
finance, accounting, and office professional end markets and in its industrial
contract services. Professional contract services has experienced consistent
recovery since May 2020 through this quarter resulting in the revenue increase
of $1,246 for the three-month period ended March 31, 2021, as compared with the
three-month period ended March 31, 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 and position the Company for recovery. The decline in
industrial contract services is driven by a continuation of 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 March 31, 2021
decreased by $761, or approximately 17%, over the three-month period ended March
31, 2020, driven primarily by a decrease in number of placements. Demand for the
Company's direct hire services also have declined due to the continuing presence
and negative impacts related to the COVID-19 pandemic. Direct hire services
demand has historically been observed to be more sensitive to economic and labor
market conditions than demand for contract staffing, which means it may be
expected to recover more slowly than contract staffing services in the aftermath
of the COVID-19 pandemic, as well.
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 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 March 31, 2021 increased by
approximately 5% to $23,810 compared to $22,767 for the three-month period ended
March 31, 2020. The $1,043 overall increase in cost of contract services for the
three-month period ended March 31, 2021 compared to the three-month period ended
March 31, 2020 was primarily attributable to the corresponding increase in
professional contract service revenues.
Gross Profit percentage by service:
Three Months
Ended March 31,
2021 2020
Professional contract services 25.5 % 26.6 %
Industrial contract services 8.8 % 14.1 %
Professional and industrial services combined 23.3 % 24.8 %
Direct hire placement services 100.0 % 100.0 %
Combined gross profit margin % (1) 31.4 % 34.4 %
________________
(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 March
31, 2021 was approximately 31.4% as compared with approximately 34.4% for the
three-month period ended March 31, 2020.
In the professional contract services, the gross margin (excluding direct hire
placement services) was approximately 25.5% for three-month period ended March
31, 2021 compared to approximately 26.6% for the three-month period ended March
31, 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 1.1% (1,100 basis points) decrease is a disproportionate
increase in the mix of lower margin office and clerical temporary staffing
services within the overall COVID-19 pandemic business recovery taking place.
The Company's industrial contract services gross margin for the three-month
period ended March 31, 2021 was approximately 8.8% versus approximately 14.1%
for the three-month period ended March 31, 2020. The decrease in industrial
contract services gross margin is due to a charge taken in the three-month
period ended March 31, 2021, for 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 14.2% and 14.1% for the three months ended March 31, 2021 and
2020, respectively. The increase after adjustment to remove the effect of the
workers compensation premium refunds is generally within a reasonable
performance range for our industrial business.
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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 three-month period ended March 31, 2021, decreased by
$3,621 as compared to the three-month period ended March 31, 2020. SG&A for the
three-month period ended March 31, 2021, as a percentage of revenues, was
approximately 26% compared to approximately 37% for the three-month period ended
March 31, 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. In addition, a provision for doubtful
accounts related to a key customer who filed for a bankruptcy protection of
approximately $1.7 million, was taken in the form of a charge to income during
March 2020.
SG&A also 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 $39 and $776 for the three-month periods ended March 31, 2021
and 2020, respectively, and include mainly expenses associated with former
closed and consolidated locations, and personnel costs associated with
eliminated positions.
Depreciation Expense
Depreciation expense was $77 and $69 for the three-month period ended March 31,
2021, and 2020, respectively. The increase is due to the fixed assets additions.
Amortization Expense
Amortization expense was $1,015 and $1,398 for the three-month period ended
March 31, 2021 and 2020, respectively. The decrease is due to certain SNI
intangible assets related to non-compete agreements that have become fully
amortized since the three-month period ended March 31, 2020.
Income from Operations
The income from operations increased by $2,990 for the three-month period ended
March 31, 2021 compared to the three-month period ended March 31, 2020. The
increase is due to the factors described above including a decrease in
amortization and interest expense, 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 revenues and to reduce and manage costs to adapt to
the COVID-19 pandemic and position the Company for recovery.
Interest Expense
Interest expense was $2,534 for the three-month period ended March 31, 2021,
which decreased by $531 compared to the three-month period ended March 31, 2020.
The decrease in interest expense for the three-month period ended March 31, 2021
is mainly attributable to the interest expense related to the former 9.5% Notes
and 10% Notes that was included in the three-month period ended March 31, 2020.
In addition, of the $2,534 of net interest expense, $2,040 represents interest
on the Company's Senior Credit Agreement, and $445 represents amortization of
capitalized and other debt related costs. 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.
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Provision for Income Taxes
The Company recognized a tax expense of $117 for the three-month period ended
March 31, 2021. Our effective tax rate for the three-month period ended March
31, 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. 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 $1,735 and $5,428 for the three-month periods ended
March 31, 2021 and 2020, respectively. The increase is due to the factors
described above including decrease in amortization and interest expense, a
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 revenues
and to reduce and manage costs to adapt to the COVID-19 pandemic and position
the Company for recovery.
On April 19, 2021, the Company was able to raise common equity capital and on
April 20, 2021, repaid all its remaining outstanding principal and accrued
interest balances under its former Senior Credit Agreement. The Company incurred
$2,485 in interest expense in the accompanying consolidated statement of
operations for the three-month period ended March 31, 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.
Six Months Ended March 31, 2021 Compared to the Six Months Ended March 31, 2020
Net Revenues
Consolidated net revenues are comprised of the following:
Six Months
Ended March 31,
(in thousands) 2021 2020 Change Change
Professional contract services $ 53,177 $ 53,216 $ (39 ) 0 %
Industrial contract services 9,134 10,126 (992 ) -10 %
Total professional and industrial
contract services 62,311 63,342 (1,031 ) -2 %
Direct hire placement services 7,050 8,895 (1,845 ) -21 %
Consolidated net revenues $ 69,361 $ 72,237 $ (2,876 ) -4 %
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Contract staffing services contributed $62,311 or approximately 90% of
consolidated revenue and were lower by ($1,031) for the six-month period ended
March 31, 2021, as compared with the comparable period ended March 31, 2020.
Direct hire placement services contributed $7,050, or approximately 10%, of
consolidated revenue for the six-month period ended March 31, 2021, and were
down ($1,845), or approximately 21%, as compared with the comparable period
ended March 31, 2020. Contract staffing services revenue was $63,342, or
approximately 88%, of consolidated revenue and direct hire placement revenue was
$8,895, or approximately 12%, of consolidated revenue for the six-month period
ended March 31, 2020.
The overall decrease in contract staffing services revenues of $1,031, or 2%,
for the six-month period ended March 31, 2021 compared to the six-month period
ended March 31, 2020 was primarily attributable to negative effects of the
COVID-19 pandemic primarily for our industrial services. 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, and corresponding decreases in the volume of contract services
billable hours. The Company experienced the majority, but not all, of these
contract staffing services reductions in its finance, accounting, and office
professional end markets and in its industrial business. Professional contract
services have experienced consistent recovery since May 2020 through the first
six months ended March 31, 2021, resulting in the near full return of
professional contract services revenue (to within $39) with revenue reported for
the comparable first six months ended March 31, 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 and position the Company for recovery. The decline
in industrial contract services is driven by a continuation of negative impacts
related to the COVID-19 pandemic, 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
closings and other shutdowns.
Direct hire placement revenue for the six-month period ended March 31, 2021
decreased by $1,845, or approximately 21%, over the six-month period ended March
31, 2020. Demand for the Company's direct hire services also have sharply
dropped due to the continuing presence and negative impacts related to the
COVID-19 pandemic. Direct hire services demand has historically been observed
to be more sensitive to economic and labor market conditions than demand for
contract staffing, which means it may be expected to recover more slowly than
contract staffing services in the aftermath of the COVID-19 pandemic, as well.
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 six-month period ended March 31, 2021 decreased by
approximately 4% to $45,873 compared to $47,729 for the six-month period ended
March 31, 2020. The $1,856 overall decrease in cost of contract services for the
six-month period ended March 31, 2021 compared to the six-month period ended
March 31, 2020 was primarily attributable to the corresponding decline 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:
Six Months
Ended March 31,
2021 2020
Professional contract services 25.9 % 26.5 %
Industrial contract services 29.3 % 15.0 %
Professional and industrial services combined 26.4 % 24.7 %
Direct hire placement services 100.0 % 100.0 %
Combined gross profit margin % (1) 33.9 % 33.9 %
_______________
(2) Includes gross profit from direct hire placements, for which all
associated costs are recorded as selling, general and administrative
expenses.
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The Company's combined gross profit margin, including direct hire placement
services (recorded at 100% gross margin) for the six-month period ended March
31, 2021 and 2020 was approximately 33.9% each.
In the professional contract staffing services segment, the gross margin
(excluding direct placement services) was approximately 25.9% for six-month
period ended March 31, 2021 compared to approximately 26.5% for the six-month
period ended March 31, 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 0.6% (600 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 six-month period
ended March 31, 2021 was approximately 29.3% versus approximately 15.0% for the
six-month period ended March 31, 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 six months ended March 31, 2021 includes
$1,318 of such premium refunds. The industrial contract services gross margins
excluding the effects of these items were approximately 14.9% and 14.5% for the
six months ended March 31, 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 six-month period ended March 31, 2021 decreased by
$5,426 as compared to the six-month period ended March 31, 2020. SG&A for the
six-month period ended March 31, 2021, as a percentage of revenues, was
approximately 27% compared to approximately 33% for the six-month period ended
March 31, 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. 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 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 $181 and $633 for the six-month periods ended March 31, 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 $150 and $148 for the six-month period ended March 31,
2021, and 2020, respectively. The increase is attributable to net fixed assets
additions.
Amortization Expense
Amortization expense was $2,059 and $2,795 for the six-month period ended March
31, 2021 and 2020, respectively. The decrease is due to certain SNI intangible
assets related to non-compete agreements that have become fully amortized since
the six-month period ended March 31, 2020.
Income from Operations
The income from operations increased by $5,141 for the six-month period ended
March 31, 2021 compared to the six-month period ended March 31, 2020. The
increase is due to the factors described above including a decrease in
amortization and interest expense, 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 revenues and to reduce and manage costs to adapt to
the COVID-19 pandemic and position the Company for recovery.
Interest Expense
Interest expense was $5,220 for the six-month period ended March 31, 2021, which
decreased by $1,064 compared to the six-month period ended March 31, 2020. The
decrease in interest expense for the six-month period ended March 31, 2021 is
mainly attributable to the interest expense related to the former 9.5% Notes and
10% Notes that was included in the six-month period ended March 31, 2020. In
addition, of the $5,220 of net interest expense, $4,225 represents interest on
the Company's Senior Credit Agreement, and $890 represents amortization of
capitalized and other debt related costs. 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 $277 for the six-month period ended
March 31, 2021. Our effective tax rate for the six-month period ended March 31,
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 six-month
period ended March 31, 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 $2,050 and $8,992 for the six-month periods ended
March 31, 2021 and 2020, respectively. The increase in net income for the
six-month periods ended March 31, 2021 is mainly attributable to the factors
described above including $1,318 of annual premium refunds from the Ohio Bureau
of Workers Compensation during the six months ended March 31, 2021, a decrease
in interest expense and amortization expense. Also, the Company's mitigating
efforts beginning in approximately mid-March 2020 to restore revenues, to reduce
and manage costs to adapt to the COVID-19 pandemic contributed to the Company's
recovery.
On April 19, 2021, the Company was able to raise common equity capital and on
April 20, 2021, repaid all of its remaining outstanding principal and accrued
interest balances under its former Senior Credit Agreement. The Company
incurred $5,115 in interest expense in the accompanying unaudited condensed
consolidated statement of operations for the six-month period ended March 31,
2021, which obligations have now ceased effective April 21, 2021.
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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.
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 the Credit Agreement. 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:
Six Months
Ended March 31,
(in thousands) 2021 2020
Cash flows provided by (used in) operating activities $ 196 $ (2,067 )
Cash flows used in investing activities
$ (12 ) $ (83 )
Cash flows provided by financing activities $ - $ 473
As of March 31, 2021, the Company had $14,258 of cash, which was an increase of
$184 from $14,074 as of September 30, 2020. As of March 31, 2021, the Company
had working capital of $8,685 compared to $13,351 of working capital as of
September 30, 2020.
Net cash provided by (used in) operating activities for the six-month periods
ended March 31, 2021 and 2020 was $196 and ($2,067), respectively. The positive
operating cash flow in the six-month period ended March 31, 2021 corresponds
with positive income from operations 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 six-month periods ended March 31, 2021 and 2020.
Cash flow provided by financing activities for the six-month period ended March
31, 2020 was primarily attributable to proceeds from advances taken on the
revolving credit facility.
Minimum debt service payments (principal) for the twelve-month period commencing
after the close of business on March 31, 2021, are approximately $15,604. 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 March 31, 2021, are approximately $1,822.
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The Company experienced net losses for the first six 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 and eliminating underperforming personnel,
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.
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 commercial
(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 $45,630. 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.
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. The Company will take one time
charge of $4,004 which represents unamortized debt issue costs associated with
its former senior debt.
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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Table of Contents
Off-Balance Sheet Arrangements
As of March 31, 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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GEE GROUP INC. 