Hello, and welcome to the GEE Group Fiscal First Quarter Ended December 31, 2021 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. Joining me as a co-presenter is Kim Thorpe, our Senior Vice President and Chief Financial Officer. Thank you very much for joining us today. It is our pleasure to share with you GEE Group's results for the fiscal first quarter ended December 31, 2021, and to provide you with our outlook for the remainder of our 2022 fiscal year. Some comments Kim and I will make may be considered forward-looking, including predictions and estimates 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 in Monday's earnings press release and our most recent Form 10-Q 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 the statements made on today's call. During this presentation, we will also talk about some non-GAAP financial measures. Reconciliations and explanations of these measures are in are included in Monday's earnings press release, our presentation of financial amounts and related amounts, including growth rates, margins and trends around it are based upon rounded amounts for purposes of this call and all amounts' percentages and related items presented for approximations accordingly. For your convenience, our prepared remarks for today's call are available in the Investor Center of our website, www.geegroup.com. With that business behind us, I'm very happy to report that our first quarter of our 2022 fiscal year was another outstanding quarter and arguably one of our…

Thank you, Derek, and good morning. As Derek said, consolidated revenues were $42.8 million of the fiscal 2022 first quarter. This was up 24% and from the fiscal 2021 first quarter, the 2022 fiscal first quarter is the fourth consecutive quarter of revenue growth over prior year comparable quarters since the beginning of the pandemic and the third consecutive quarter of double-digit top line organic growth. Our professional staffing services segment revenues were $38.8 million, up 31% from the fiscal 2021 first quarter. Professional direct hire or permanent placement services revenues were up 82% over the comparable prior year quarter. They comprised 16% of total revenues for the Professional Services Business segment and 14% of all revenues. Professional contract services revenue in the fiscal 2022 first quarter also grew nicely, up 25% over the fiscal 2021 first quarter. Our IT services end markets at Agile, Access Data, Paladin Consulting and SNI Technology accounted for 48% of our Professional Services Business segment revenues and were up 21% year-over-year. The other professional services end markets, finance, accounting, administrative and office, engineering, health care and other accounted for the remaining 52% of professional services business revenues and were up 43% in the quarter year-over-year. The industrial services business segment revenues representing 10% of total revenues for the quarter were down $1 million as compared to the fiscal 2021 first quarter. We experienced a resurgence of pandemic-like conditions associated with the Delta and then Omicron variants in our Ohio markets including recurring school and business closings and interruptions, which were reminiscent in some respects of the early COVID-19 pandemic. As these conditions begin to recede and we exit the winter months and weather interruptions, such as the recent winter storms we all experienced across the U.S., we expect our light industrial business to begin…

Thank you, Kim. The 2022 fiscal first quarter is one of our best ever and a great start for fiscal 2022. At December 31, 2021, the company had $12 million of cash in the bank and no borrowings outstanding on our bank ABL credit facility with over $13 million in availability. Now that all of our former CARES Act PPP loans have been forgiven by the SBA, our debt leverage is 0. This all greatly enhances both the current enterprise value and financial fundamentals of our company and significantly improves GEE Group's prospects for future profitable growth in 2022 and beyond. We are well positioned to augment organic growth with strategic acquisitions. GEE Group has continued its strong momentum from the fourth quarter of fiscal 2021 into fiscal 2022, and we expect to report good results for the remainder of our 2022 fiscal year and beyond. And finally, we'd like to again thank our wonderful employees for the professionalism, hard work and dedication, without which we could not have accomplished all the good things we have this quarter and this year.

Now Kim and I will be happy to answer your questions. [Operator Instructions] Thank you very much, and we'll proceed to the question-and-answer session. So the first question we have is from Spain. And thank you for your compliments on our -- on the company's performance and what we've done to date. The question is, you have earned the possibility for share buybacks. You've been generating cash, which should be reinvested in the company. And if you buy another company, you can use the shares purchased. The answer to that question is spot on that we are capable of doing share buybacks. Would we consider it? We will consider it, and those shares could be issued from the treasury in connection with an acquisition. And I'll answer the second question since it's the same person. The question was you made an offering in 2021, an equity offering. I think you ruled out another equity offering before an acquisition. The answer to that is correct. We don't need to do equity offerings at this point clearly. And please be supportive of shareholders going forward, and we deserve it, and thank you very much. We agree with you, and we'll follow through as discussed. Thank you for your question. We'll go to another question here in a second.

Hello?

Yes. Can you take the next question?

Sure. Given the business requires little tangible capital to operate, what are the barriers to organic growth that maybe make it not as focal within the strategy as M&A? That's a great question. We're in a very competitive industry. It does have very solid organic growth, but it's low single-digit organic growth and to achieve the growth objectives that we've established internally for ourselves, that will -- that really sort of dictates us to look for strategic acquisitions. When we formed GEE in 2015, that is we reversed acquired GEE, it was only about $40 million in revenue and wasn't really making money. Today, we're trending up towards $160 million in revenue. We've done 5 acquisitions. We've spent the last couple of years integrating, assimilating, building platforms with which to take the next big steps and to be able to acquire companies and assimilate them and integrate them efficiently, and now we're in a position to be able to do that. So it will be a combination of both. We will always focus on organic growth, and we're doing very well organically now. So that's my answer.

Thank you, Kim. The next question is, unless catastrophe hits within the industry or the company, it seems that the company is clearly undervalued to a large degree. Given the large cash position, can we expect a tender offer or a buyback so that the M&A strategy can begin to pick up again? The answer to that is we're always looking at acquisitions, and we do have a pipeline of good targets. This person is very correct or the shareholder in that we are now positioned to be able to do those things. And there's a second part of this question or another question in connection with it that says, during the previous acquisitions spree, the double-digit growth rates -- or double-digit interest rates on the financing were crippling and ultimately led to the stockholders being diluted because the equity offering. Going forward, how will the balance look like between debt, cash and equity to finance M&A? And is there going to be not to take on higher rate financing in the future. The answer is a combination of cash, equity and seller financing will be used and possibly bank financing of our low-priced ABL, and we are not going to get into a high-rate financing nor are we going to do an equity offering in connection with M&A. We have the capacity to do what we need to do with our balance sheet today and without getting into high-rate debt. So that's a good observation, and I agree with exactly what was said. The next question says, congrats on the recovery. The case for reverse stock split and a share repurchase are obviously compelling, the stock trading at $0.60 a share and only at 5x EBITDA. No meaningful acquisition can match the return on buying back stock here and…

Yes. SG&A was up this particular quarter because we took a charge, $0.5 billion charge to eliminate a position. And believe it or not, that's about almost 1% impact for the quarter. And then also because the revenue growth was so strong, both in this quarter and in the September quarter, we paid more in bonuses and incentive comp. We had a step-up as opposed to a pro rata smooth ramp-up of bonuses and incentive comp. So those two things combined caused SG&A to pop up from 27% to 29%. But let me say, when -- back in 2018 and 2019, SG&A was running well above 30% in every quarter. And in some cases, 32%, 33%. We're doing -- we will continue to manage this to keep the SG&A below where it is now. As Derek mentioned, one of our goals is to get to double digit EBITDA -- a double digit EBITDA margin. So -- and I'll tell you, I think we've done a fairly good job of making sure that we get the most out of our SG&A dollars. But yes, that will always be -- and then again, when we grow, as Derek said, that number will come down even -- the percentage will come down even more.

Thank you, Kim. The next question refers to strategic acquisitions. Just how close are you to a strategic acquisition? What we've tried to do was position ourselves and our balance sheet so that we can make the acquisitions, not only make them accretive to earnings per share, but also to make sure that we keep the strength of our balance sheet. And we have acquisitions in the pipeline. We were waiting to get our PPP loans forgiven, which occurred in December. So now we have cash, we have an unused credit facility and as appropriate, we have equity that we could issue in connection with an acquisition. We have stock buyback potential too. And I would say that combo of all of those things would be more likely to occur in the near term. So the key is with acquisitions as well, we have to see how they performed during the COVID era, coming out of COVID. We want to see normalized numbers. We want to make sure they're strategic. The acquisitions that we're looking at are almost exclusively related to information technology, which is the fastest growth sector and has the highest profitability in staffing and otherwise. So our landscape looks good. We're charged up. We also wanted to get the internal growth machine going so we can fund with operating cash flow, acquisitions and buybacks and everything else that are in what I call the arsenal of improvement regarding shareholder value, EPS, EBITDA, net income, and we'll move forward. One of the next question ties into one of the earlier ones, given the variable nature of many of our expenses and the variable nature is basically recruiting and account management costs, and they're tied to volume. There's commissions involved there on performance and things like that and just…

Yes. The answer to that is we do expect a low effective tax rate, and we do have NOLs to help offset that for this year.

Okay. Great. Do you expect negative, neutral or favorable cash flow related to working capital in 2022? Do you want to take that?

Yes. Right now, our EBITDA is a fairly good proxy for cash flow. And when I say EBITDA, I mean pure EBITDA because we now -- we have no interest right now. Prior to that, a big chunk of our cash flow was going to interest. That's now not happening. So that cash is now redirected inward. So we're -- that's a pretty good way to look at gauging our cash flow for the year.

Okay. Great. What are expectations for revenue growth in fiscal 2022? Should we expect good operating leverage, EBITDA and earnings growth, exceeding revenue growth and free cash flow? We hit some of those points, but Kim, why don't we cover that as well?

Yes. But if you look at -- if we break our SG&A down further, about 2/3 of it is what I would call selling expense, which really funds all of our people in the field. And of that amount, about 40% of that is variable comp, bonuses, incentives other than base. And then -- and the rest are salaries. Those will step up as we hire more people, the salary portion. And of course, the variable portion will go up kind of pro rata as sales increase. But our -- the other 1/3 of our SG&A is what I would call pure G&A and those costs tend to be more fixed. So I would expect that 1/3 to remain relatively stable. So if you follow all that math, then we could scale down somewhere where were -- we're saying we're at the 27% or 28% right now, that could scale down 1% or 2% with the level of growth that we're looking for in fiscal 2022.

Okay. The next question says, great quarter, Derek and Kim. Would it be possible to get a sense of the range for revenue and EBITDA growth for 2022? And then this ties into it, can you help us with growth expectations for this year, 2022? Should we think 20% given year-over-year comps? It gets harder, but the labor market remains tight. We can both work on that. So clearly, when you're coming off a downturn, there's some growth that's recovery growth. And then layered on top of that, there's growth because business is great. The labor market is great, hiring and so forth is conducive to our industry and our company, particularly in the segments that we're in, which I believe we're in the best segments with a huge focus on IT. So 20% on comps get harder in a tight labor market. That is a true statement. It's a tight labor market, but it doesn't mean that we can't grow significantly. So 20% would be a great target for organic growth in any business. And I've been able to do that historically in a predecessor company, and we are well positioned to do it. But I would tend to think that a more normalized growth expectation is a lower double-digit, and augmented with an acquisition, you could push it over 20%. Kim, do you want to add anything to it?

Yes. I would just say that, first of all, going into last year, fiscal 2021 and the early part of that year coming out of the pandemic here, we've overshot our growth mark significantly. We thought we would finish the year at about $139 million or $140 million of revenue. We ended up almost $149 million. There's still some catch-up happening in the economy right now. As we pointed out in our remarks, it's somewhat unusual to have a December quarter as big as we just had because normally our June and September quarters are more active in employment opportunity. But again, because the country is all still -- the labor market is still hardening, we're having this quarter. Conservatively, we're going to pull back a little bit on the March quarter because the March quarter is typically -- it's got a lower number of workdays and there's weather and holidays and the like. So we're not expecting -- we're conservatively, we think March will drop a little bit. But we think we'll end up -- clearly, we'll be above 2020 and above 2019. So that's kind of how we're looking at it. And again, I think high single digit, low double digit is not unreasonable.

The next question is do you...

Yes, sorry. Organic.

The next question, do you anticipate as inflation has increased, will the inflation premium be passed on to clients as labor charges have increased across the U.S.? I mentioned that previously, the answer is yes. We've been able to pass it through, and it does increase the gross profit dollar per hour billed and the gross margin percentage. Share buybacks were supposed to be part of our triple option football play for the last conference call. Why have we kept it eliminated from our playbook? It's still in the playbook. We still have the triple option. And I think that one of the hesitancies before we executed our play, so to speak, or called the play was to get our PPP loans forgiven, which occurred in December. So also, we wanted to see another quarter of good results as well. And patience is a virtue that I've learned to have overtime. It's called old age, I guess. But I can safely say that the playbook is still there, and now it's time to execute the place. And I think all of these questions are things we focus on every day. So yes, the option. I'm not going to tell you right now which play we're going to take out of the playbook, but our goal is to score touchdowns and win. So we have it in our arsenal. And I think that it's a reasonable expectation at some point as well. When the stock trading at 4x EBITDA, why would you consider using equity for acquisitions? That would dilute shareholders as target would be priced at a higher multiple. Excellent point. Unless we can see accretion to earnings per share, it makes no sense to use your own equity at depressed levels. Agree with the comment. I recall from the…

Derek, we have one more question, if you want to take a look.

Has it just come in?

Yes.

Is that how do acquisition multiples in your pipeline, especially for IT staffing compared to your own valuation of 5x. Is that the one you're referring to?

No, no. All my questions have already been answered.

Okay. Got it. Okay. You want me to say that one because it's a really complementary. It says, hi, all of my questions have already been answered. Just wanted to give it a quick and simple feedback, great job. We're very pleased with how you guys act and very happy with our position from last year's offering. We do share the ambitious revenue target for 2025 and strongly believe you guys are capable to execute. Best wishes from Switzerland. Well, boy, that's great. We like that. Thank you very much for the comment. We'll work hard to continue that momentum. We do have another one. Insiders continue to not buy any shares, is this something that is talked about with our directors and C-suite team? Insiders have a lot of shares, including me, and a lot of shares that were paid for with cash that are much higher than where we're trading today. So our targets are high for us, and what we have expectations for, for our stock price, and we all have a stake in the game. Part of the problem is too that when the stock dips and we're sitting on results that haven't been reported yet, we can't buy in at that point or we have acquisitions that we're considering or other information that's not public at that point. So it's a little trickier today to buy at certain times. But yes, insiders, we talk about it. Our directors often ask, can they buy at this point? And sometimes we have to black them out because of what I just discussed. I've seen from a view of an office that they said they felt cash flow to the company working remotely. Obviously, the company provides tremendous value to the worker, but how does the company make…

Derek, there's one more -- we have time for one more question. I think it's a pretty good one. Do you want to...

Okay. What do you have to say to those that state that pure-play online staffers will out your business as lower price substitutes. That question comes up a lot. And there's a few online staffers out there. I know of one that's public and losing money. But again, online staffing is no different than I use the real estate analogy that's out there. So you have a lot of, what I call, website real estate sites that actually are exchanges, medium of exchanges for valuing real estate and in fact, advertising real estate and so forth. Realtors that actually deliver the sale and close the sale are killing it. So those sites have been used as tools and visibility. And I believe that, at some point, we'll have our own version of an online exchange or medium where the hiring manager can engage into a database if they have the recruiting horsepower. Remember, there's a task here. You can have an online exchange, but somebody's got to go in there and sort out thousands of resumes. We have experts doing that every day from a narrowed database. So aggregating a bunch of revenue, I mean, of resumes into a database is just one facet parsing the resumes by skill set and otherwise. And we used a little bit of artificial intelligence. We had a tool used, but the machine learning aspect of it was still flawed because it was based on human, humans and their biases, by the way. So we've really sharpened the pencil on narrowing down what tools we use and how we use them to shrink the database to only quality candidates that have the skill sets. So those aren't mature enough actually, but they serve a purpose of aggregating resumes that can be tapped, but then you have to have further analysis on that.

But remember, Derek, also 90% of our business, we actually employ the people, employing people is a big value-add that a pure-play online can't do.

Right. And everybody -- you have to assume that every potential worker that's available will post on multiple job boards as well as the online exchanges. So LinkedIn Recruiter, Dice for IT, CareerBuilder, Monster, Indeed, ZipRecruiter, I mean we have them all, Sense. We have Text messaging, Textkernel. I can go down the list. So I view those as additional tools, and we may, in fact, have our own version of it as an alternative for a customer. But you're going to find -- there was another one out in Texas, and they created a portal and the whole game. And it literally had to sell because it just couldn't get off the ground and it merged with another. So I don't view that as a threat. I view it as an added tool to use in delivering resources. That concludes our presentation for today. Thanks for coming on. Look for good things going forward. And those of you who are investors, thank you for your investment and those who are not, we'd love to have you as a shareholder. Thanks again. Have a wonderful 2022. We'll talk soon.