Hello, and welcome to the GEE Group Fiscal Fourth Quarter and Year End September 30, 2023 Earnings and our update for 2024 Webcast Conference Call. I'm Derek Dewan, the 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.

It is our pleasure to share with you GEE Group's results for the fiscal year and the fourth quarter ended September 30, 2023, and provide you with our outlook for the fiscal year 2024 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, Form 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. During this presentation, we will also talk about some non-GAAP financial measures.

Reconciliations and explanations of the non-GAAP financial measures that we address today are included in our earnings press release. Our presentation of financial amounts and related items, including growth rates, margins and trend metrics are rounded are 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. Having turned in the record performance and results for the fiscal 2022 year, we encountered significant macroeconomic and staffing industry particular headwinds in fiscal 2023, which negatively impacted our full fiscal year and fourth quarter ended September 30, 2023.

Consolidated revenues were $152.4 million for the fiscal year and revenues for our fiscal fourth quarter were $34.3 million. Gross profit and gross margins were $52.9 million and $11.6 million and 34.7% and 34% for the fiscal year and fourth quarter ended September 30, 2023, respectively.

Our consolidated non-GAAP adjusted EBITDA for fiscal 2023 was $7 million, down $5.5 million or 44% compared to fiscal 2022. Non-GAAP adjusted EBITDA for the fiscal 2023 fourth quarter was $1.2 million, up $0.2 million or 23% compared to the fiscal 2022 fourth quarter.

We were able to achieve consolidated net income of $9.4 million or $0.08 per diluted share for the 2023 fiscal year. Consolidated net income for the fiscal 2023 fourth quarter was $0.2 million and slightly above breakeven per diluted share.

As Kim will explain further, the prior fiscal year’s results were well above normal led by record high demand for direct hire placement services fueled by a post COVID-19 bounce upward in hiring. The pull back in demand for direct hire placement services and in certain administrative, clerical and light industrial contract services in 2023 contributed to the shortfall in 2023 results compared with last year's numbers.

Fiscal 2023's performance still compares favorably with our industry peers taking into account the operating environment and particularly, in terms of the growth we achieved in our combined professional IT contract services businesses and brands. Before I turn it over to Kim, I would like to share some important achievements and milestones during the quarter.

First, the September 2023 quarter was our ninth consecutive quarter of profitability and free cash flow generation since we completed our deleveraging initiatives in June of 2021. Despite fiscal 2023's lower results compared to fiscal 2022, our operating performance and financial results have been on par with and better in certain respects than our larger industry peers.

We believe our IT contract services brands demonstrated the ability to grow under difficult conditions, and in particular, positions us well for future growth and further increasing shareholder value. We implemented our $20 million share repurchase program in late April 2023, which has served as a key component of our capital allocation plans in fiscal 2023.

As of September 30, 2023, we had repurchased 3.4 million shares of our common shares and as of December 15, 2023, we have repurchased 5.8 million JOB shares or 5% of our outstanding shares at the beginning of the program. I want to assure everyone that we believe that our stock is undervalued and has substantial room to grow.

As a matter of fact, many, if not most publicly traded staffing firms, are trading below market indices and their 52 week highs due to economic concerns. Measuring forward from the time we announced the funding of our follow-on offering on April 19, 2021.

GEE Group stock has outperformed most of its public staffing industry peers, including several of the largest players. Despite the macroeconomic and staffing industry specific headwinds facing us, we are continuing to focus on the growth of our businesses and taking other definitive actions to help grow shareholder value.

In addition to repurchasing 5% of our outstanding shares in 2023, we added three new independent directors to our board in the fall, including the managing director of our largest shareholder appointed a lead independent director and committed to undertake a review of strategic alternatives available to us with a view towards unlocking shareholder value. Most recently, we have engaged the investment baking firm of DC Advisory to assist us with the review of strategic alternatives, which includes capital allocation strategies, mergers, acquisitions, et cetera.

And finally, before I turn it over to Kim, I want to once again thank our wonderful dedicated employees and associates. They work extremely hard every day to ensure that our clients get the very best service.

They are a key factor in our achievements and the most important driver of our company's future success. At this time, I'll turn the call over to our Senior Vice President and Chief Financial Officer, Kim Thorpe, who will further elaborate on our fiscal 2023 annual and fourth quarter results.

Kim?

Thank you, Derek, and good morning. As Derek mentioned, revenues for fiscal 2023 were $152.4 million, down 8% as compared with fiscal 2022 revenues of $165.1 million.

Revenues for the fourth quarter of the fiscal year were $34.3 million, down approximately 18% as compared with the fourth quarter of fiscal 2022. The lower revenues in fiscal 2023 were primarily the result of the macroeconomic forces, including inflation, rising interest rates and the resulting negative impacts on the labor market and hiring environment, which impacted the entire staffing industry.

Fiscal 2023 followed a period of recovery experienced in 2022, which was primarily due to a post COVID-19 bounce upward in employment. As Derek mentioned, the pull back in demand for direct hire placement services and in certain administrative, clerical and light industrial contract services in 2023 that contributed to the shortfall in 2023 results were primarily the result of these headwinds.

While fiscal 2023 results were lower overall, the company once again was profitable and generated good positive cash flow from operations, as it has consistently done since completion of the significant deleveraging initiatives and a follow-on offering during the quarter ended June 30, 2021. We also believe our top line performance has been in line with our industry peers and above average in certain respects, including the performance our IT brands.

Our lowest performing businesses continued to be those serving light industrial and administrative and office clerical markets. At this stage, we remain cautiously optimistic about our ability and timing to return to overall growth once again, which we expect to be led by our IT brands and our other professional services businesses, and with the anticipation that the uncertainties and unknowns about the economy and labor environments weighing on the businesses today begin to lessen during fiscal 2024.

Professional and industrial contract staffing services contributed $133 million and $30.7 million or 87% and 90% of revenues for the fiscal 2023 year and fourth quarter, respectively. Professional contract services revenues, our largest contract services segment, represents 86% of all contract services revenue and 79% of consolidated revenue, and decreased $2.5 million or 2% compared to fiscal 2022.

The bright spots in this comparison were the professional IT brands’ contract services revenues, which grew 3% year-over-year. IT contract services revenues were 59% of all professional services contract revenue and IT direct hire and contract services revenue combined represent 49% nearly half of the consolidated revenues for fiscal 2023.

Direct hire revenues for fiscal 2023 were [$19.4] million, down $7.2 million or 27% compared with fiscal 2022. Direct hire placement revenues for fiscal 2023 fourth quarter were $3.6 million, down $2.9 million or 45% as compared to the fiscal 2022 fourth quarter.

As Derek and I have mentioned earlier, fiscal 2022 was a record high year for direct hire placement services. Industrial staffing services revenues were $13 million and $3 million and represented 9% of total revenue for both fiscal year and fourth quarter ended September 30, 2023, respectively.

We continue to experience growth challenges in our light industrial markets, which we attribute to increased competition for business and temporary labor, which again has occurred since the COVID-19 pandemic. Among the newer post-COVID-19 competitors for labor are emerging B2C firms, such as UBER, Lyft and Door Dash.

These firms were able to compete effectively due to the additional independence and flexibility they offer workers. Recent inflation also has led us to increase hourly wages and benefits for our temporary workers in our light industrial business in Ohio.

These conditions also have helped drive increased competition among staffing firms in Ohio for laborers to fill staffing job orders. We are continuing to actively develop and implement new sales and recruiting programs to help attract and retain candidates and restore growth in our industrial business.

We also have implemented price increases in Ohio, which have improved spreads and helped to mitigate the impact of inflation on labor conditions there. Consolidated gross profits and gross margins were $52.9 million or 34.7% and $11.6 million or 34% for the fiscal year and fourth quarter ended September 30, 2023, respectively.

The declines in gross profit and gross margin, again, are mainly attributable to lower revenues, including most notably direct hire placement business, which has a 100% gross margin. On the contract side, increases in contractor pay associated with recent inflation also have caused some spread compression within certain professional services businesses.

The company continues to focus on counter-inflationary measures, including increases in mark-ups, bill rates and spreads in order to improve margins and profitability. Despite lower year-over-year gross profit and gross margins, our current margins remain relatively high and were very competitive as compared with the company's industry peers.

Selling, general and administrative expenses, SG&A, for the fiscal year and fourth quarter ended decreased $4.3 million and $3.2 million respectively as compared to the comparable fiscal 2022 periods. SG&A expenses were 31.2% and 33% of revenues for the fiscal year and fourth quarter ended September 30, 2023 respectively as compared with 31.4% and 34.8% of revenues for the fiscal year and fourth quarter ended September 30, 2022, respectively.

In the fiscal fourth quarter of 2023, the company's SG&A included $700,000 in legal and corporate expenses related to negotiations with shareholder activists and associated compliance matters. Excluding the effect of these SG&A expenses, the ratio of SG&A expenses to revenue would have been 30.9% and 30.7% for the fiscal year and fourth quarter ended September 30, 2023, respectively.

In late February and March 2023 you will recall, the company implemented certain cost reductions with an estimated annual savings of approximately $4 million. Despite the significant declines in revenues in 2023, these cost reductions have helped achieve lower SG&A and total operating expense ratios in fiscal 2023 versus fiscal 2022, again, despite lower revenues.

The company monitors operating costs, including the impacts of inflation with a view towards identifying and taking advantage of possible cost reductions on a routine basis. We achieved net income for the fiscal 2023 of $9.4 million or $0.08 per diluted share as compared with net income of $19.6 million or $0.17 per diluted share in fiscal 2022.

Adjusted net income, which is a non-GAAP financial measure, for the fiscal year and fourth quarter ended September 30, 2023 was $11.1 million or $0.10 per diluted share and $1.1 million or $0.01 per diluted share respectively as compared to $7.7 million or $0.07 per diluted share and $400,000 loss or just under breakeven per diluted share for the fiscal year and fourth quarter ended September 30, 2022, respectively. The company recognized a net deferred tax benefit of $7.2 million for the fiscal year ended September 30, 2023, which accounted for approximately $0.06 of this period's earnings per diluted share.

The elimination of our former longstanding 100% deferred tax asset valuation allowance that resulted in this large net deferred tax benefit has been another positive achievement for our company. Adjusted EBITDA, which is a non-GAAP financial measure, for the fiscal year and fourth quarter ended September 30, 2023 was $7 million and $1.2 million as compared with $12.5 million and $1 million respectively for the comparable fiscal 2022 periods.

Several factors we've covered, including notably the decrease in fiscal 2023 revenues from fiscal 2022's record highs, as well as economic headwinds, inflationary pressures and rising interest rates present this year account for these declines. As I mentioned a moment ago, we continue to monitor operating costs for possible cost reductions on a routine basis and also will take other definitive actions in order to improve our margins and profitability.

Our current or working capital ratio at September 30, 2023 was a strong 3.7:1, up 100 basis points from 2.7:1 as of September 30, 2022. Free cash flow, a non-GAAP financial measure for the fiscal year ended September 30, 2023 was $5.8 million as compared with $9.1 million for fiscal 2022.

Our liquidity position remains strong. We have no outstanding debt.

Our net book value per share and our net tangible book value per share were $0.98 and $0.36 respectively as of September 30, 2023. Net book value per share is up $0.10 and net tangible book value per share is up $0.11 compared with $0.88 and $0.25 respectively as of September 30, 2022.

To conclude, as Derek said, we remain cautiously optimistic in our outlook for fiscal 2024 with appropriate consideration of macroeconomic and labor market related uncertainties and unknowns that exist in our operating environment. Before I turn it back over to Derek, please note, again, that reconciliations of GEE Group’s non-GAAP financial measures discussed today and in our earnings release with their GAAP counterparts can be found in supplemental schedules included in our earnings press release.

Now, I’ll turn the call back over to Derek. Derek?

Thank you, Kim. The fiscal 2023 fourth quarter marked our ninth consecutive quarter of strong operating performance since deleveraging the company.

Having consistently achieved higher margins and free cash flow over the years, we continue to build a positive track record, as well as positive momentum for the future. As of September 30, 2023, company had no debt and approximately $22.5 million in cash with $11.3 million in availability under its bank ABL credit facility.

GEE Group’s prospects today for future profitable growth continue to expand and improve. Despite macroeconomic headwinds, staffing industry specific challenges and unforeseen events, we will continue to work hard for the benefit of our shareholders and we expect to deliver solid results for the upcoming fiscal 2024 year and beyond and significantly increase shareholder value.

Before we pause to take your questions, I want to again say a special thank you to all our wonderful people for their professionalism, hard work and dedication. Without them, we could not have accomplished all the good things that we have shared with you today.

Now Kim and I would be happy to answer your questions. Please ask just one question and rejoin the queue with a follow-up as needed.

If there’s time, we’ll come back to you for additional questions. So the question-and-answer period will now start.

And one of the first questions is regarding a stock buyback versus a potential for a dividend payout. We have engaged DC Advisory to explore all these strategic alternatives, including capital allocation strategies and the best use of our funds.

So that will be included as part of the analysis. And we expect that information to be furnished to us in conclusion of the project, which will probably be somewhere in 45 days or so, possibly 60 on the outside.

But they will do an extensive review of all the alternatives, including the potential for dividend or otherwise. The next question is, why didn't you start on time?

To be honest, I held back the start time for the benefit of our shareholders who were logging-in in rapid numbers. And we can actually see when you log in, so I felt like I need to give all shareholders an opportunity for a couple of minutes, and we started approximately at 11:03.

Company performance, in a nutshell, this was a tough year. Are we satisfied?

Absolutely not. Did we do well under the circumstances?

You know what, we did pretty well generating cash flow and profitability, but we're never satisfied. So complacency breeds poor performance or mediocrity, that's not in my vocabulary.

So going forward, I can assure you that winning matters to us and as Vince Lombardi said, winning isn't everything, it's the only thing. And I believe that give us some time we will get to where you want us to be and where I want us to be.

And I am a significant shareholder as is Kim. And we will continue to execute our largest shareholders on the Board of Directors and he has affirmed our strategy going forward and is totally supportive of where we're going upward.

Why on earth should we have equity investments in your company? The answer to that is, because we believe that you will ultimately do well given a period of time and not too long based upon our strategies and how we execute.

And there's a lot of arrows in the quiver to deliver success and we are focused on that. Rest assured, we are not satisfied with the performance or complacent, because complacency breeds mediocrity and that's not in our vocabulary.

Let's see. For peer group analysis, we're happy to provide that separately from discussion, and we can talk about that.

So if you want to make an inquiry to us on a separate call about talking about the peer group in the industry, including statistical data, we have that information. We're happy to share it with you.

So just let us know if you'd like to conduct a call regarding that. By the way, misery may love company, but we don't like it.

So just because the peer group is not doing great because of external factors that doesn't mean we're complacent and satisfied. So rest assured, we're doing everything in our power to deliver great results.

We don't think we had a great year. We think we had a good year relative to the circumstances, but not a great year.

Let's see. Why is the stock price dropping?

Well, it's pretty clear that due to the results not being as Stellar as they were the prior year, some people take that to mean that's indicative of a longer term downfall in results. That is not what we think nor predict.

So I would say rest assured, we'll get back on track where we need to be or want to be and move forward. Revenue run rate going from here, is Q3 a baseline going into next year?

The important thing here is that we do believe that the industry suffered this year some decline clearly in permanent placement or direct hire revenue across the board, that was down substantially. But also there's been a pause in the labor markets on hiring due to uncertainty in the macroeconomic sense, higher interest rates, so projects were put on hold as well, and there was tepid hiring, particularly in the fourth quarter for us.

The indicative, someone said is Q3 indicative of what you can do. It is, but we don't know when that faucet turns on.

Is it first quarter, which has seasonality in it, or is it second or third quarter. The important thing is, on a fairly short strategic view, we think we are going up and we will turn the corner.

The other thing is, I mean, we are working on keeping SG&A down, but we don't want to cut too much. We are actually hiring people to generate revenue.

So that's very important to be prepared for an upswing. And cyclicality in this industry over the years, and we are happy to share that with you privately, because I don't want to get into a dissertation about it.

But you can see the downswing and upswing. And I do want to say that typically in a downturn, firm gets hit first then temp a bit.

But on the upswing, contract starts upward and then firm follows. So that's been traditionally so and you can go back to '80-'81, '90-’91, 2000-2001, '06 to '08 and then the decline in a recession and then the upswing again.

COVID tepid performance in 2020 but then the upswing '21-‘22, and last year was a big COVID bounce, because of really cutting to the bone unemployment by many companies and then of course a quick recovery. So our goal is to normalize profitability upward as far as revenue growth as well.

Which vertical show improving demand? IT, which was industry down 10% to 12%, but we are seeing good solid movement.

The key is the rate of decline slowed and then now we are starting to see some pickup. So that's historic as well.

And I can tell you that as I sit here today, I am focused on growth and profitability, and I think we are starting to see improving demand. Someone said, when do you think it’s going to happen?

We think it’s probably the second quarter, which is our June 30 quarter in 2024. March quarter will be stable, 12/31 quarter, which ends soon.

We will be on par with where we have been with showing some increase in demand. But I think more importantly, we’re well positioned.

We have no debt, we have cash, we have good operating margins, we have better than peer group gross margin. I can go down the list, and I am happy to share those with you.

But again, I don't compare our company to the peer group as much as what we need to do to be successful. Are you looking at M&A opportunities?

Yes. And we are having a strategic review by DC Advisory to analyze what makes sense, tuck-in acquisitions, all the other options that are out there as well.

And let's see. Okay.

How can you better manage expectations? Some of the macro challenges makes it a little more difficult from a quarterly basis.

But on an annualized basis, we're better able to manage the expectations. And cash flow sharply -- what do you think about cash flow?

Okay. Industry conditions.

Are they getting better? The answer is yes and we feel like we've hit kind of the bottoming out phase of the cyclicality in the staffing industry, and we are seeing improvement.

The improvement typically is not drastic and is gradual, except in the spring, in summer months, we're looking forward to better than gradual improvement. We hope there's some better acceleration there.

Okay. Let's see what someone said here.

How can you better manage -- let's see in here. This was a very nice -- thank you very much.

Someone's a [Packer] fan, so they like my Vince Lombardi quote. And let me tell you something.

I'm dead serious. I was a Packer fan growing up, and Green Bay was America's team even though Dallas claims that position.

So I have a lot of respect for people that can win consistently and that's been my track record. I will absolutely win.

I'm not happy with results that we have. I'm reasonably satisfied because how we're positioned for success is probably the best indicator of future stock performance.

Let’s see internal headcount, how's that looking. Any sectors that grew more than others?

Kim, will you comment on IT contract, because we actually grew that, even in the environment.

Happy to. Yes.

We not only grew IT contract but we also grew our engineering contract services, which is a much smaller business, but it grew nonetheless. And we grew our accounting firm business, which also is small.

The reason IT is important is because as is our strategy, it's our priority vertical and it is becoming larger and larger in proportion to our total business. When I joined the company, it was just under 40%, now it's almost 50%.

And the significance of it is, is that it has much more resilience in economic cycles or tends to, although, there was a pullback in IT hiring, actually, I think that began in 2022 went into 2023. But we have a very good array of businesses.

We're focused on cutting edge areas, such as AI and generative AI, cybersecurity and those. And I also -- Derek, if you don't mind, I'd like to comment on, there's been a couple of questions.

Your stock is down, why should we buy your stock? I just want to point out a metric that maybe some of you haven't necessarily focused on.

And that is, if I look at the stock price where it is right now $0.49 and I marked that down for a reasonable control premium, say, 30%, that gets me in the high 30%, mid to high $0.30 range. Our tangible book value, that is only our cash and AR minus our liabilities, is $0.36 a share.

That means that there's zero value, zero, being given to the operating businesses. Even though we just went through an audit and we're able to support the value of nearly $70 million of intangible assets with conservative cash flow forecast.

So all I can say is, I think that something is missing in the marketplace here that we're not getting any recognition for that. And for -- there was a comment in here that said something about the job market was hot the entire year, what are we talking about?

I don't know that the entire staffing industry would agree with that, because I can tell you that staffing industry analysts published their industry update and economic update in September and their prediction is that the entire staffing industry, top line will be down 10% for 2023. So I just want to bring a few facts to the table to respond to some of this.

Let me amplify that, because the job market is kind of a misnomer. You have to bifurcate the term job market.

Job market for what? Hospitality was up.

Some lower level positions, hiring was up. IT was down.

Look at the layoffs that occurred in IT and we succeeded despite that. We're picking up a lot of those IT people and putting them back to work on project works.

And quite frankly, projects were put on hold, because of the higher interest environment, uncertainty, the macroeconomic environment, including things like Ukraine, things like Gaza, all those things weigh on CEOs in corporate America a bit. Now, I can say that it's an election year next year.

Rates look like they're coming down, they probably have already. But we think that the Federal Reserve and that group will actually take appropriate action to stimulate the economy.

Once people think things are more normalized, we'll tend to hire more contact labor, because they’re still a bit uncertain and when they feel really bullish, the perm business kicks in in high gear. We're hiring people now internally to grow our business, because we measure performance by per desk average.

Our per desk average is good but we want more people at that per desk average to get revenue up. We have a huge sales program going on right now in IT that we're launching.

There's a whole bunch of things we're doing to get that top line cranked. And on the other hand, you know, we're very cost conscious.

So we're working on SG&A to keep that lower and in fact reduce it, particularly when your top line is down. So there's a lot we're doing.

And I want to assure you that we're doing it aggressively and judiciously. Another question is please touch on how the new directors added value to GEE Group.

I have to say that we recently had a board meeting and the input from the new directors and their perspective has been most valuable to us. We all have a ton of experience but our new directors bring a different view to the table.

Our largest shareholder is one of them. The other two directors that came on as well have experience in the industry.

And so that's been most valuable to the executive team to get their perspective, and they are very, very active. So we feel real good about the choices we have made and their contribution to us.

I talked about the labor market. Can you provide an update on your -- is the market down enough and you see some.

Obviously, some deals will now be cheaper and have been. We have some targets and the multiples low on getting these targets.

So is it better than buying stock? That's an evaluation that will be done by DC Advisory, which will make sense, not to overpay for something when you are trading at a certain multiple.

But I think importantly, we want to acquire businesses that grow, that can add EBITDA and top line to our company. So at this point, I would like to terminate the call.

And those of you that have follow-up questions or would like to have discussions, let us know. We are happy to address it.

We value you as shareholders and we will deliver and work really hard to get our stock price -- appropriately priced and more importantly, to move forward in a big way to create value. And again, thanks again.

Have a great holiday season. We wish you all well and trust that we are working very hard to deliver the results that you guys deserve and we deserve.

So thanks. That concludes our call.