GEE Group, Inc. (JOB) Q3 2026 Earnings Report, Transcript and Summary

Hello, and welcome to the GEE Group Fiscal 2026 Third Quarter and year-to-date period ended June 30, 2026, Earnings and Update Webcast Conference Call. I'm Derek Dewan, the Chairman and Chief Executive Officer of GEE Group. I will be hosting today's call and 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 2026 third quarter and year-to-date period ended June 30, 2026, and provide you with our outlook for the remainder of the fiscal 2026 year in 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 forward-looking statements safe harbor and in Wednesday's earnings press release and our most recent Form 10-Q, 10-K and other SEC filings under the captions Cautionary Statement regarding forward-looking statements and forward-looking statements safe harbor. We assume no obligation to update statements made on today's call. Throughout this presentation, we will refer to the periods being presented as this quarter or the quarter and this year-to-date or the year-to-date, which refers to the 3- or 9-month periods ended June 30, 2026, respectively. Likewise, when we refer to the prior year quarter or the prior year-to-date, we are referring to the comparable prior 3- and 9-month periods ended June 30, 2025, respectively. When we refer to the prior sequential quarter, we are referring to the 3-month period ended March 31, 2026. During this presentation, we will also talk about some non-GAAP financial measures. Reconciliations and explanations of the non-GAAP measures we will address today are included in the earnings press release. Our presentation of financial amounts and related items, including growth rates, margins and trend metrics are rounded or based upon rounded amounts for purposes of this call and all amounts, percentages and related items presented are approximations accordingly. For your convenience, our prepared remarks for today's call are available in the Investors section on our website, www.geegroup.com. Now on to today's prepared remarks. First, I am pleased to share that our GEE Group reported improved financial results, including net income for this quarter and year-to-date. We performed very well despite a choppy hiring environment, which has an impact on the demand for the company's staffing services. Companies and businesses continue to cautiously assess the economy and market conditions to ensure their investments in technology and human capital are strategic and sustainable. We performed well in light of the challenging macroeconomic conditions and the acquisition of one of our larger, higher volume, lower-margin clients who moved their staffing services to an affiliate of the acquirer earlier this fiscal year. The company's improved financial performance was driven by our growth in direct hire placement revenues, which have the highest gross margin at 100% and are up 16% for the quarter and year-to-date and appear to be on course so far for a better fiscal 2026 versus fiscal 2025. We also expect and are optimistic that the use of contingent labor will stabilize this year as we are aware that some businesses are beginning to initiate new projects, which we anticipate will lend to more job orders and temporary staffing placements. Artificial intelligence or AI is gaining ground at an accelerated pace and is further complicating the human resources landscape, creating both challenges and opportunities for businesses, including the consumers of our services. We believe the uncertainties created by recent macroeconomic conditions and the acceleration in the use of AI are factors contributing to the volatility in job orders for both contract and direct hire placements. However, AI will benefit GEE Group as we are implementing and incorporating it into our own business and strategic plans in order to digitize, streamline, enhance and accelerate our recruiting and sales processes. Another closely aligned AI goal of ours is to provide our clients with the necessary human resources solutions to implement and support their uses of AI and help them increase speed, efficiency and profitability. These initiatives are a high priority for us, and our goal is to begin seeing returns later this year. Our contract staffing and direct hire placement services are currently provided under our Professional segment. The operations and substantially all the assets of our former Industrial segment were sold during the fiscal 2025 and were reclassified as discontinued operations being excluded from the results of continuing operations for the fiscal 2025 periods we'll make comparisons today. Our consolidated revenues were $20.8 million for the quarter and $60.8 million year-to-date. Gross profit and gross margin were $8.3 million and 39.9%, respectively, for the quarter and $23.1 million and 38%, respectively, year-to-date. Consolidated non-GAAP adjusted EBITDA was $570,000 for the quarter and $582,000 year-to-date. We reported net income of $566,000 for the quarter and $430,000 year-to-date. We continue to aggressively take actions to adjust and enhance our strategic focus, growth plans and financial performance and results, including streamlining our core operations and improving or adjusting our productivity to match our current lower volumes of business. This has helped improve our results despite lower business volume. We took measures to reduce our SG&A during the latter portion of fiscal 2025 by an estimated annual amount of $3.8 million. These cost reductions and others realized so far in fiscal 2026 have contributed $1.1 million to our decrease in SG&A for the quarter and $3.5 million year-to-date versus the comparable prior year periods. As we announced early last year, we completed the acquisition of Hornet Staffing in fiscal 2025 and have increased our focus on VMS and MSP sourced business, including the use of special recruiting resources and acceleration of the integration and use of AI technology into our recruiting, sales and other processes. Our results for the quarter are encouraging, and we remain cautiously optimistic that we can improve them in the last quarter of fiscal 2026 and beyond. In addition to these near-term initiatives, we are working closely with our frontline leaders in the field to support them as we all continue to aggressively pursue new business in addition to growing and expanding existing client revenues. We are seeing some positive results from these efforts and are well positioned to meet the anticipated increased demand from existing customers and expect to win new business. GEE Group has a strong balance sheet with substantial liquidity in the form of cash and borrowing capacity. The company is well positioned to grow organically and to execute on strategic opportunities. We also continue to believe that our stock is undervalued and especially so based upon recent trading at levels very near and even slightly below tangible book value and that there is a good opportunity for upward movement in the share price as we deliver growth and sustainable profitability, which will lead to maximizing shareholder value. Once again, I wish to thank our wonderful dedicated employees and associates. They work extremely hard every day to ensure that our clients get the very best service and are the most important ingredient for our company's current and 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 2026 third quarter and year-to-date results. Kim?

Thank you, Derek, and good morning. As Derek mentioned, we reported net income of $566,000 or $0.01 per diluted share for the quarter ended and $430,000 or $0.00 per diluted share year-to-date as compared with net losses from continuing operations of a negative $401,000 or approximately $0.00 per diluted share for the prior year quarter and negative $34.0 million or a negative $0.31 per diluted share for the prior year-to-date. The comparable prior year-to-date period included a $22 million noncash goodwill impairment charge and a $9.7 million provision for income taxes that was attributable to an increase in the company's valuation allowance on its deferred tax assets. These noncash charges alone accounted for approximately 93% of our fiscal 2025 year-to-date net loss. In addition to the absence of these noncash charges in fiscal 2026, we have been able to grow our direct hire revenues significantly, improve our gross margins and realize the benefits of the cost reductions and productivity improvements we began implementing in the latter portion of fiscal 2025 and others realized so far in fiscal 2026. Our adjusted EBITDA, a non-GAAP financial measure, was $570,000 for the quarter and $582,000 year-to-date, improving from negative adjusted EBITDA of a negative $25,000 and a negative $918,000 for the comparable prior periods, respectively. EBITDA, which is also a non-GAAP measure, was $444,000 for the quarter and $149,000 year-to-date, improving again from negative EBITDA of a negative $270,000 and a negative $1.7 million for the comparable prior year periods, respectively. One of the bright spots in our results so far in fiscal 2026 has been our ability to grow our highly profitable direct hire placement revenues. These were $3.8 million for the quarter and $9.7 million year-to-date, up approximately 16% and 10%, respectively, from the comparable prior year periods. Additionally, direct hire placement revenues were up 18% from the prior sequential quarter. As Derek also reported, consolidated revenues were $20.8 million for the quarter and $60.8 million year-to-date, down 15% and 17%, respectively, from the comparable prior periods. Contract staffing revenues were $17 million for the quarter and $51.1 million year-to-date, down 20% and 21%, respectively, from the comparable prior periods. As Derek also reported, one of our former higher volume, low-margin clients was acquired and moved its business to an affiliate of the acquirer at the beginning of our fiscal 2026 year. This accounted for $2.2 million and $7.3 million of the net decreases in our contract staffing revenues for the quarter and the year-to-date, respectively. Absent the loss of this single account, contract staffing services revenues decreased 11% for the quarter and 10% year-to-date. Contract staffing service revenues were up 4% from the prior sequential quarter. The volatile macroeconomic environment and the implementation of AI to replace certain types of jobs has impacted the hiring environment and the demand for our staffing services. Many companies and businesses, including some of our existing clients remain somewhat tentative regarding making investments in human resources. However, we have been able to adjust and adapt during this quarter and year-to-date so far, and we are working very hard to realize significantly improved financial results for this year. Gross profit was $8.3 million for the quarter and $23.1 million year-to-date, down 5% and 7%, respectively, from the comparable prior year periods, primarily due to the lower contract services revenue. However, gross margins improved and were 39.9% for the quarter and 38.0% year-to-date, both up significantly, 450 basis points and 380 basis points, respectively, from 35.4% for the prior year quarter and 34.2% for the prior year-to-date. The significant improvements in our gross margins are mainly attributable to the growth and increase in the mix of direct hire relative to total revenue. Also contributing to a lesser extent is an increase in prices and spreads on some of our contracting services business, while the loss of the higher volume, low-margin account we spoke about earlier caused a significant portion of our contract revenue reduction year-to-date. It also has contributed slightly to an improvement in the business mix in our gross margins. Selling, general and administrative expenses, or SG&A, were $7.8 million for the quarter and $23 million year-to-date, down 12% and 14% from the comparable prior year periods. Our SG&A as a percentage of revenues for the quarter was 37.7%, up from 36.5% for the prior year quarter. SG&A for the year-to-date was 37.8% and 36.5% for the prior year-to-date. This percentage increase is attributable to lower revenues in relation to fixed costs such as certain personnel and occupancy costs. Execution of the cost reductions realized so far in fiscal 2026 has allowed us to throttle back the potential growth in this percentage that would have been more expected compared with the higher declines in revenues realized. In response to the realities of our environment and in order to maintain a resilient posture, we continue to prioritize and focus heavily on the opportunities that are in front of us, including streamlining our core operations and improving our productivity to better match our current volumes of business. As Derek mentioned, we reduced our SG&A during the latter portion of fiscal 2025 by an estimated $3.8 million on an annual basis. These and other cost reductions so far have contributed $1.1 million to our decrease in SG&A for the quarter and $3.5 million year-to-date over the comparable prior year periods. Aiding in our improvement in financial results despite lower volumes of business overall. We are now well underway updating and further integrating our ERP and applicant tracking systems and certain other key operating systems and processes. These new tools are expected to add substantial enhancements to our core business processes, ranging from significant improvements in the speed and accuracy of our client and candidate service processes and cycles, our ability to share and leverage client and candidate information across all our businesses and are expected to increase our overall productivity and scalability and result in additional cost reductions and revenue improvements. Importantly, these initiatives also will include strategic and thoughtful implementation of AI tools to make us even more efficient and competitive. We're on track to be substantially complete with the implementation by the end of September and to be fully complete by the end of calendar 2026. In addition to positive earnings in terms of net income, EBITDA and adjusted EBITDA in the quarter and significant improvements in our year-to-date operating results, the company also produced net cash from continuing operations for the quarter and reduced the amount of cash used in our operations year-to-date compared with the prior year-to-date. As of June 30, 2026, our liquidity position remained very strong at $20.3 million in cash. Our ABL facility, which remains undrawn, had availability of $5.2 million, net working capital of $24.4 million, and we had no outstanding debt. Our current and working capital ratio was a strong 5:1. Our net book value per share and net tangible book value per share were $0.46 and $0.23, respectively, as of June 30, 2026. In conclusion, while these improvements in our results so far this fiscal year are a source of optimism, we do remain cautiously optimistic in our near-term outlook. At the same time, we also remain resolved -- resolve to continue to improve our financial results and profitability and to stay focused and prepare for the long term, including the improvements in our core business processes and systems and the integration of AI that Derek and I just spoke about. Before I turn it back over to Derek, please note that reconciliations of GEE Group's non-GAAP financial measures discussed today with their GAAP counterparts can be found in the supplemental schedules included in our earnings press release. Now I'll turn the call back over to Derek.

Thank you, Kim. Despite some macroeconomic headwinds and staffing industry challenges impacting the demand for our services, we are aggressively managing and preparing our business to continue to deliver profitability and continuing with the execution on both organic and M&A growth plans and initiatives. As previously announced, GEE Group has engaged ROTH Capital Partners to assist in evaluating strategic alternatives available to the company, which would maximize shareholder value. This initiative has been led by the Board's Mergers and Acquisition Committee in conjunction with the entire Board of Directors, management and ROTH. This robust process included several meetings to review and evaluate multiple expressions of interest for a potential M&A transaction with the company from various parties as well as the consideration of other strategic alternatives to enhance shareholder value. Our Board of Directors, in accordance with its fiduciary duty, will consider any bona fide offer regarding a business combination, acquisition or other transaction that it believes will enhance shareholder value. Before we pause to take your questions, I want to again say a special thank you to all of our wonderful people for their professionalism, hard work and dedication. Now Kim and I would be happy to answer your questions. Please just ask 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.

Okay. At this time, just give us a moment to reposition here for the Q&A. Okay. Our first question is from one of our investors. ROTH was engaged 5 months ago and substantial progress was the message in May. How many parties have submitted indications of interest? How many have progressed to diligence? Will you commit to a decision time frame? Do you want me to take that? Yes. As Derek just reported, we are in a process. I can't get into details about the process because that wouldn't be appropriate. But I can say that the response has been robust. We're well along our way and our Board and M&A committee are actively at it, and we hope to have a decision very soon. It wouldn't be appropriate to try to preannounce a time frame, but it will be as soon as the time is right. And when the time is right, we will report something out on it. The next question is, I'm skipping over several questions that are getting into some activists, it looks like planted inappropriate questions. So I'm going to skip over those. What would be your ideal outcome of the strategic review? Derek, do you want to take that?

The likely outcome?

What would be the ideal outcome?

Ideal outcome. Well, obviously, the goal is to maximize shareholder value. And the process has been, as you said, robust and includes various options, different proposals, all of which would lead to increased shareholder value. So the evaluation process is what's happening now. And the M&A committee in conjunction with the Board and ROTH have met several times with management facilitating information flow. And I can safely say that it will come to fruition soon, and we're optimistic that the result will be very good for shareholders. And I think that's the important thing here. And we're very pleased that we can also deliver good operating results while this is going on because the bread and butter of the company is to deliver the results and have an appropriate balance sheet and outlook, and we do.

Can I add something? Sure. Just to put everybody -- make everybody aware, the process is being virtually entirely driven by the independent members of our Board, including our largest shareholder.

Great point.

Okay. The next question is, what is the rationale behind the ABL facility? And it indicates why do we keep it? It cost us $120,000 a year, et cetera. I can -- I'll give you my take on it. Having an ABL is a pretty standard thing for staffing companies, not to say that we're trying to follow a pack or anything. But in the staffing world, when there is a recovery, we would prefer not to burn excess cash that we have on hand potentially for other strategic things, including an attractive acquisition or a stock repurchase program or whatever the Board might decide from time to time. We would rather have an ABL facility. When the business grows, there's a cash strain because you are identifying, recruiting and bringing on board and paying contractors to send out to clients in advance of sending the bills to the clients and then collecting the cash on average 40 to 45 days later. So that's the purpose of keeping the ABL. In our case, our cost of our ABL is nearly -- in fact, I think it's almost entirely offset by the interest income we're earning on our excess cash. So we keep the facility in place now. We did renew it, and we took -- we did renew it for a short period for a year recently. And so we intend to keep looking at it and see if we can get better pricing in the market.

Let me add, too, that virtually all staffing companies that do contract staffing have an ABL facility because the way contract staffing works, you spend dollars for payroll and the customer -- you hold an account receivable for the customer. But in order to fund the payroll, particularly in a growth mode, you do need to draw down on the ABL periodically. Now if the growth isn't substantial, you're able to use your internally generated cash flow. However, most staffing companies, if not all, view it prudent to have an ABL facility. We've reduced it over time to reduce unused fees. But at this point, I think it's perfectly set to handle our business volume.

Okay. The next question, do you consider a share buyback to be part of a future capital allocation strategy?

The answer to that is yes. That's always on the table as an option for us. So in connection with the review of strategic alternatives, that option in some form or fashion is presenting itself as well. So that's one option. I call it the arrows in the quiver, and it could come in different forms. But yes, the answer is yes.

Okay. Give me just a minute. The next question is, now that the results are positive, does management have any plans to repurchase shares?

I think that dovetails back into what I just said and in conjunction with the strategic alternative process. It's one of the options that we have available and will absolutely be considered.

Yes. And then straight below book value would management consider a buyout? Yes, we've discussed that. Can you clarify what ROTH's scope of work is or was for their engagement? What is the status of that engagement? I think we talked about that.

I can comment a little bit more because I think it's critical that it's very broad and encompasses kind of the universe of potential activities and things that we could do to benefit our shareholders. And they have been dutiful in their approach and timely and in communication with our M&A committee who have in turn included the full Board and management as appropriate. So we feel confident that all of the alternatives are being addressed and the best option will be presented to shareholders. And as you know, shareholders ultimately will have the final say into any type of transaction of significance.

Yes. And then the final question, you mentioned that you think stock is materially undervalued. And getting back to a prior question that cited the $0.21 a share, I mean, our net book value -- tangible book value per share is less than -- is greater than $0.21. So it's absurd that a business that is turning profitable again with $80 million in revenue would be valued at a negative number. So that's kind of the math behind our thought there.

Let me add that in connection with the share value or the share price, when the strategic alternatives are being reviewed, there's an impact analysis done to see the impact on share price.

Correct.

So that -- the M&A committee is looking at that very, very hard in conjunction with the process to make sure that it isn't just a strategic move with a hope for a benefit. There's an analytical process to determine what the impact should be or could be on share price upon the consummation of the transaction or strategic alternative chosen.

Yes. And there's one more question that came in, and I think I skipped over one, and I apologize. The original question was, it sounds like the Hornet acquisition has not been successful in meeting the target you set when underwriting the deal, given the track record of poor acquisitions. I'll just remind everybody that GEE Group had $40 million in revenue and a negative $4 million -- or $4 million in operating losses that was about to be delisted when the present founders took it over. So I'll just throw that out there. So I would quibble a little bit with the poor acquisition track record. We'll commit to suspending acquisitions until at least the strategic review is concluded. As a practical matter, nothing probably is likely to happen until the strategic review is -- it's completed. But having said that, we still maintain relationships with other relations out in the marketplace. So we're going to continue to have those discussions, but we're not going to rush out and do anything rash. So to put you at ease on that. And on the Hornet acquisition, the Hornet acquisition has been, I would argue, for the revenue it's brought and for the additional resources has brought to the company has been hugely successful. Offshore recruiting capability -- for what we paid for it, it's generating $4.5 million or $5 million in revenues. And the total purchase price after adjustments we paid has been less than the commission we would pay annually to buy that much revenue. So I would say the Hornet acquisition was a very nice timely tuck-in acquisition for us.

And the other brands and operating units are sharing the Hornet resources to fill job orders using the offshore team. So -- and we're going to a common applicant tracking system that happens to be the same system that the Hornet team is using offshore so that we can integrate and share resources real time. So it's been a very good strategic transaction overall.

I think that's the last question, if I'm not mistaken. Yes, that's the last question.

So we really appreciate you joining us today, and we'll keep you posted on all developments. And most importantly, we have our noses to the grindstone, so to speak, on keeping the results where they need to be and growing them further, in fact, while the strategic alternatives process comes to some conclusion that we believe will benefit all shareholders substantially. Thank you for joining us today, and that concludes our call.