Operating Income $637,000; Adjusted EBITDA $2 million; Significant Post Quarter Reductions in Debt and Interest Costs; New ABL Credit Facility
JACKSONVILLE, FL / ACCESSWIRE / May 17, 2021 / GEE Group Inc. (NYSE American:JOB) ("the Company" or "GEE Group"), a provider of professional staffing services and human resource solutions, today announced results for the second quarter ended March 31, 2021.
2021 Second Quarter Highlights and Post Balance Sheet Events
- Revenues were approximately $34.7 million and up slightly over both the second quarter of fiscal year 2020 and sequentially
- Income from operations of approximately $637,000 vs. a loss from operations of approximately $(2.4) million for the second quarter of fiscal year 2020
- Adjusted EBITDA (a non-GAAP financial measure) of approximately $2 million up from approximately $783,000 for the second quarter of fiscal year 2020
- Gain on extinguishment of debt, including accrued interest, of approximately $279,000 in aggregate, associated with the forgiveness of the Company's CAREs Act PPP loan obtained for Scribe Solutions, Inc. by the SBA
- Cash of approximately $14.3 million and GAAP net working capital of approximately $8.7 million at quarter end
- Common stock equity offering including exercise of over-allotment option completed in April, 2021 with total gross proceeds raised of $57.5 million before underwriters' discount, commissions and expenses
- Pro forma financial information from post-March 31, 2021 balance sheet events includes pro forma net debt reduction of approximately $52 million and pro forma net income of $696,000 for the quarter ended March 31, 2021, primarily associated with pro forma interest expense cost savings of approximately $2.4 million and pro forma shareholders' equity of approximately $74.5 million (see pro forma financial information)
- New $20 million bank ABL credit facility closed after quarter end with a five (5) year maturity and an annual interest rate based on a "Base Rate", as defined in the loan agreement, plus an applicable margin; or the London Interbank Offering Rate ("LIBOR" or any successor index rate thereto) plus an applicable margin (determination of the interest rate is subject to certain conditions and minimums; annual interest rate is currently expected to range from approximately 4% to 5.25%)
Discussion of 2021 Second Quarter Results
Revenues for the fiscal 2021 second quarter were approximately $34.7 million, up slightly over both the second quarter of fiscal year 2020 and sequentially over the preceding quarter. Contract staffing services contributed approximately $31.0 million or approximately 89% of revenue and direct placement services contributed approximately $3.7 million or approximately 11% of revenue. This compares to contract staffing services of approximately $30.3 million or approximately 87% of revenue and direct hire placement services of approximately $4.4 million or approximately 13% of revenue respectively for the same quarter of fiscal 2020. The increase in contract staffing services revenue of approximately $800,000, or approximately 3%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 was primarily attributable to a recovery and improvement in the professional contract services business from the negative effects of the COVID-19 pandemic.
Beginning in the latter part of March, 2020, COVID resulted in a decline in overall economic activity in the U.S. and a reduction in the demand for GEE's staffing services at many clients. This was due to company and government-mandated office closures, project postponements, delays in hiring decisions and travel restrictions. The decrease in business activity related to COVID-19 occurred primarily in the Company's industrial staffing services segment and professional staffing services verticals in finance, accounting and office support. The information technology ("IT") vertical was the most resilient to the negative impacts attributable to COVID-19 and continues to show increases in both the number of contractors on assignment and direct hire placements. Overall professional contract staffing services has experienced a consistent recovery since the initial decline in late-March 2020 resulting in a revenue increase of approximately $1.2 million for the three-month period ended March 31, 2021, as compared to the three-month period ended March 31, 2020. GEE Group believes this upward trend will continue and that the Company is well positioned to capitalize on the overall economic recovery in the U.S. due to the re-opening of businesses, more widespread COVID-19 vaccinations and swift actions taken by management to adapt GEE's personnel and business processes to the "new normal" COVID-19 working environment.
Industrial staffing services revenue was approximately $4 million for the March 31, 2021 fiscal second quarter as compared to approximately $4.5 million for the March 31, 2020 fiscal second quarter. The decline in industrial contract services revenue of approximately $500,000 was attributable to slower recovery from COVID-19 due to a workforce shortage being felt across the U.S. widely believed to be the result of continuing and enhanced federal and state unemployment benefits, generous economic stimulus payments, anticipated "refundable" child care tax credits and the continuing closure of many schools resulting in parents staying home to care for their children. As most of the aforementioned government subsidies are scheduled to expire later this year and schools reopen, the Company expects that many recipients of the benefits will rejoin the workforce.
Direct hire placement revenue for the three months ended March 31, 2021 decreased by approximately $700,000 as compared to the three months ended March 31, 2020. The decrease in direct hire placement revenue was mostly attributable to the continuing negative impact of COVID-19. Direct hire placement services demand has historically been observed to be more sensitive to economic and labor market conditions as compared to the demand for contract staffing services and typically recovers more slowly from an economic downturn. However, the Company has experienced a strong demand in the fiscal 2021 third quarter for its direct hire placement services and believes that a more rapid than normal recovery may be underway.
Revenue from the combined professional contract staffing and professional direct hire placement services, which is comprised of staffing and solutions in the information technology, engineering, healthcare, and finance, accounting and office specialties, was approximately $30.7 million, and represents approximately 88% of total revenue for the fiscal 2021 second quarter. This compares to approximately $30.2 million and 87% of total revenue for the 2020 fiscal second quarter.
Overall gross margin (including direct hire placement services) for the fiscal second quarter ended March 31, 2021 was approximately 31.4% compared to approximately 34.4% for the fiscal second quarter ended March 31, 2020. Combined professional and industrial contract services gross margin (excluding direct hire placement services) was 23.3% for the second quarter ended March 31, 2021 as compared to 24.8% for the second quarter of ended March 31, 2020. The change in the overall gross margin was due in part to lower gross margins in both professional and industrial contract staffing services and, to a greater extent, approximately 17% lower direct hire placement revenue (which is recorded at 100% gross margin) in the fiscal 2021 second quarter as compared to the fiscal 2020 second quarter.
Professional contract staffing services gross margin (excluding direct placement services) for the 2021 fiscal second quarter was approximately 25.5% compared to approximately 26.6% for the 2020 fiscal second quarter. The change in professional contract staffing services gross margin was due to various factors including shifts in the amounts and mix of business within the specialty verticals including increased revenue from the Company's higher volume lower margin, lower cost project driven business from vendor management system ("VMS") clients as compared to the prior fiscal year second quarter.
Industrial contract staffing services gross margin for the 2021 fiscal second quarter was approximately 8.8% compared to approximately 14.1% for the 2020 fiscal second quarter. The decrease in industrial contract staffing services gross margin was due to a charge taken in the three-month period ended March 31, 2021, for a decrease in the estimated amounts of return premiums the Company is eligible to receive under the Ohio Bureau of Workers' Compensation retrospectively-rated insurance program. The industrial services gross margin normalized for the effects of these items were approximately 14.2% and 14.1% for the three months ended March 31, 2021 and March 31, 2020, respectively.
Selling, general and administrative expenses (SG&A) decreased by approximately $3.6 million and was approximately 26.4% of revenue for the fiscal 2021 second quarter, compared to approximately 36.9% for the fiscal 2020 second quarter. The decrease in SG&A expenses is primarily attributable to the Company's mitigation efforts to reduce and manage costs to adapt to the COVID-19 impact on its business and position GEE for an anticipated recovery. In addition, an increase of approximately $1.7 million in the allowance for doubtful accounts for a customer who filed for bankruptcy protection was taken in the form of a charge and included in SG&A for the second quarter ended March 31, 2020.
GAAP income from operations was approximately $637,000 for the fiscal 2021 second quarter, compared to a GAAP loss from operations of approximately $(2.4) million for the comparable fiscal 2020 second quarter.
GAAP net loss for the fiscal 2021 second quarter was approximately $(1.7) million, compared to a GAAP net loss of approximately $(5.4) million for the comparable fiscal 2020 second quarter.
Adjusted earnings before interest, taxes, depreciation, amortization, noncash stock and stock option expenses, acquisition, integration and restructuring expenses and gain on extinguishment of debt and other gains and losses (adjusted EBITDA, a non-GAAP financial measure) for the fiscal 2021 second quarter was approximately $2 million versus approximately $783,000 for the comparable prior fiscal year second quarter (see non-GAAP adjusted EBITDA reconciliation to GAAP net income (loss) attached to this press release).
Between April 29 and May 7, 2020, GEE Group received approximately $19.8 million in the form of unsecured CAREs Act Payroll Protection Program (PPP) loans. During the fiscal 2021 second quarter, the entire PPP loan balance attributable to Company-subsidiary, Scribe Solutions, Inc., plus accrued interest, in the aggregate amount of approximately $279,000, was forgiven by the U.S. Small Business Administration (SBA) resulting in recognition of a corresponding gain on the extinguishment of debt. The Company is in the process of submitting applications for forgiveness of all of its outstanding balances and accrued interest under its remaining PPP loans.
Management Comments
Derek E. Dewan, Chairman and Chief Executive Officer of GEE Group, commented, "We are pleased with the Company's overall performance in the fiscal 2021 second quarter. Our hard-working, dedicated personnel have performed admirably and adapted well to operating in a COVID-19 environment. The current upward trend in business activity and the increased demand for GEE's staffing services are most encouraging. There is a "new world order" and there are many modifications to the hiring process and the way people work. The Company intends to capitalize on these changes and we believe they will result in the increased use of contingent labor with a further acceptance of alternative work arrangements. The Company continues to focus on organic growth with targeted sales and marketing efforts to obtain new customers in addition to further penetration of existing accounts by cross selling its services. GEE delivers its broad menu of services to new and existing customers from a combination of bricks and mortar and virtual offices. The Company is selectively increasing its revenue-producing headcount in key markets to meet the increasing demand for its services."
Mr. Dewan added, "GEE has significantly improved its financial position and liquidity by eliminating high priced debt after the end of the 2021 fiscal second quarter. We expect that the GAAP financial results for subsequent quarters will show major benefits from the payoff of the former high-cost senior debt. With a bolstered balance sheet, the Company is well-positioned to continue its internal growth strategy and also make strategic acquisitions."
Use of Non-GAAP Financial Measures
To supplement the Company's consolidated financial statements presented on a GAAP basis, the Company discloses certain financial information including non-GAAP adjusted EBITDA because management uses these supplemental non-GAAP financial measures internally for planning purposes to help evaluate the Company's performance period over period, to analyze the underlying trends in its business, to establish operational goals and to provide additional measures of operating performance. GEE also uses the non-GAAP financial information to assess the Company's liquidity position, to help determine its ability to meet debt service, to make capital expenditures and to provide for its working capital needs. In addition, the Company believes that the non-GAAP financial measures presented herein are meaningful to investors and are utilized by them to analyze and monitor the Company's performance
Non-GAAP adjusted EBITDA as determined by the Company is comprised of net income or net loss before interest, taxes, depreciation and amortization (EBITDA), plus non-cash stock option and stock-based compensation expenses and acquisition, integration and restructuring costs, and excluding gains or losses on extinguishment of debt and other gains and losses. Non-GAAP adjusted EBITDA is not a term defined by GAAP and, as a result, the Company's measure of non-GAAP adjusted EBITDA might not be comparable to similarly titled measures used by other companies.
Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flow that either excludes or includes amounts that are not normally included in the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP financial measures discussed above, however, should be considered in addition to, and not as a substitute for, or superior to net income or net loss and income or loss from operations as reported in accordance with GAAP on the Consolidated Statements of Income, cash and cash flows as reported in accordance with GAAP on the Consolidated Statement of Cash Flows or other measures of financial performance prepared in accordance with GAAP, and as reflected on the Company's consolidated financial statements prepared in accordance with GAAP included in GEE Group's Form 10-Q and Form 10-K filed for the respective fiscal periods with the Securities and Exchange Commission (SEC). Reconciliations of GAAP net income or GAAP net loss to non-GAAP adjusted EBITDA for the respective periods presented herein are provided as schedules and are attached hereto as a part of this press release.
Reconciliation of Non-GAAP Adjusted EBITDA to
GAAP Net Loss
Second Quarter Ended March 31,
(in thousands)
| | 2021 | 2020 | ||||||
| GAAP net loss | $ | (1,735 | ) | $ | (5,428 | ) | ||
| Interest expense | 2,534 | 3,065 | ||||||
| Income taxes | 117 | 10 | ||||||
| Depreciation | 77 | 69 | ||||||
| Amortization | 1,015 | 1,398 | ||||||
| Non-cash stock compensation | 293 | 356 | ||||||
| Acquisition, integration & restructuring | 30 | 1,313 | ||||||
| Gain on extinguishment of debt and other gains and losses | (293 | ) | - | |||||
| Non-GAAP adjusted EBITDA | $ | 2,038 | $ | 783 | ||||
Reconciliation of Non-GAAP Adjusted EBITDA to
GAAP Net Loss
Six Month Periods Ended March 31,
(In thousands)
| | 2021 | 2020 | ||||||
| GAAP net loss | $ | (2,050 | ) | $ | (8,992 | ) | ||
| Interest expense | 5,220 | 6,284 | ||||||
| Income taxes (benefit) | (277 | ) | 181 | |||||
| Depreciation | 150 | 148 | ||||||
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