Hello, and welcome to the GEE Group Fiscal 2024 Second Quarter and first half ended March 31, 2024, Earnings and Update Webcast Conference Call. I'm Derek Dewan, 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 for joining us today. It is our pleasure to share with you GEE Group's results for the fiscal 2024 second quarter and first half ended March 31, 2024, and provide you with our outlook for the remainder of the 2024 fiscal year 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 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. We assume no obligation to update statements made on today's call. During this presentation, we also will 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 Investor Center of our website, www.geegroup.com. We have faced very difficult and…

Thank you, Derek, and good morning. As Derek mentioned, consolidated revenues for the 3- and 6-month periods ended March 31, 2024 were $28 million and $58.7 million, down 28% and 27% respectively, compared with the same fiscal 2023 periods. Professional and Industrial contract staffing services revenues for the fiscal 2024 second quarter were $25.6 million, down 25% as compared to the fiscal 2023 second quarter. Professional and industrial contract staffing services revenues for the first half of fiscal 2024 were $53.2 million, down 23% as compared to the first half of fiscal 2023. Professional contract services revenue, which represents 90% of all contract services revenue and 82% of total revenue decreased $7.6 million or 25% quarter-over-quarter. In the first half of fiscal 2024, again, professional contract services revenue represented 91% of all contract services revenue and again, 82% of total revenues and decreased $14.3 million or 23% as compared with the first half of fiscal 2023. Industrial contract services revenue, which represents 10% of all contract services revenue and 9% of total revenue decreased $800,000 or 24% quarter-over-quarter. In the first half of fiscal 2024 industrial contract services revenue represented 9% of all contract services revenue and 8% of total revenues and decreased $1.9 million or 28% as compared with fiscal 2023's first half. Direct revenues for fiscal 2024 for the fiscal 2024 second quarter were $2.4 million, down 50% as compared with fiscal 2023 second quarter revenues and were $5.5 million for the first half of fiscal 2024, down 48% from the first half of 2023. The effects of the economic and labor conditions referred to by Derek have resulted in declines in job orders for temporary and direct hire personnel from clients and the decline in revenues virtually all -- in virtually all our professional verticals. Recruiting qualified…

Thank you, Kim. At March 31, 2024, the company had $21.2 million in cash and another $8.2 million in availability under its bank ABL credit facility. Despite economic headwinds and staffing industry-specific challenges impacting demand for our services, we are aggressively managing and preparing our business for an inevitable recovery. As I mentioned in our earnings press release and again in my opening remarks, we are moving aggressively not only to prepare for an eventual recovery, but also to restore growth sooner to be driven by both organic and M&A growth plans and other initiatives. We will continue to work hard for the benefit of our shareholders, including consistently evaluating strategic uses of GEE Group's capital to maximize shareholder returns. 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 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. And at this point, that concludes our formal remarks, and we'll move to Q&A. Thank you.

So Kim, will you take the first question, please?

Sure, Derek. The first question is why do you appear to be losing market share? Your results are considerably weaker than peers and are symbolic of a deep recession. My answer to that is based on our data, we do know that our results are down at, let's say, the lower end of a group of larger companies, but the core reason that I believe our results show a little bit worse than other larger public company peers is because we have a larger contingent of small and medium size enterprises as clients. As Derek mentioned, we do have -- we have had good retention, especially among our larger clients and also at our smaller clients, but orders are down. So some of it in terms of the margins and our profits is because of our size. But overall, we are not necessarily -- we're -- in fact, we're -- our orders are good and our trends are moving in the same direction. And everything else being the same. I would not say that we're considerably weaker than our peers.

Another question. Are you concerned that discontinuing share repurchases when your book value is $0.92 is sending a bad message to prospective shareholders. Kim, do you want to take that one as well?

Sure. We are not concerned about the share repurchases for a few reasons. One is we -- and we haven't completely discounted forever share repurchases. The share repurchases are not in and of themselves the way forward with our long-term growth goals, because we're buying stock back, and I understand why individual invest -- some of our individual investors feel as strongly as they do about share repurchases, but we -- our duty is to provide stewardship in a fiduciary basis for all of our capital and all of our shareholders. And we believe that the steps we're taking now in concert with the recent strategic alternative study we performed are the way forward for the company. So -- yes, I hope it's not sending a bad message. The message it's supposed to send is that we believe very strongly that we have alternative uses for capital that will improve shareholder return even more than share repurchases. So those are my thoughts on that.

Thank you, Kim. So the next question is in regard to acquisitions. But I do want to mention on the call that, yesterday an IT staffing company called -- with a ticker symbol TSRI, which happens to be the name of the company, TSR, Inc., traded on the NASDAQ under TSRI, agreed to be acquired at a 71% premium over its trading price. TSRI's gross margins, and we know our peer group really well, around 17.5% to 18%. Our gross margins were 31.5% this quarter, and that's down from our usual highs of 34% to 37%. Also, our contract gross margin by itself without the influence of perm is in the mid and upper 20s. So from a performance metric standpoint, it's very appealing to look at our company from an undervalued standpoint. But that's just one indication of how undervalued the trading prices are of the entire group. I just wanted to point that out. And that announcement was made yesterday, an all-cash deal. I think what's important to look at the question that I have before me are suitable acquisitions and niche staffing appealing to you. The answer is absolutely, yes. We do have a health care component dealing with medical scribes. We're in the IT and accounting and finance verticals. And if we find a niche business that fits in nicely, or is in one of our existing verticals for sure, that would be appealing. And what multiples might we pay for acquisitions? And would we use stock for an M&A transaction? The multiples range from 5 to 8x, depending upon the type of business it is and whether or not there are synergies to bring the multiple down among other things, the type of consideration used in various other factors, growth rates, margins and so forth.…

Yes. First of all, let me on the question. April revenues are up. The detailed question part is we thought we saw improvement in January, but now the quarter is lower than December. And now we're saying April is better than March. April is better than March. April is better than the average of January through March and May so far is looking very promising. So that's the answer to that. Alex, do you want to comment?

Sure. To go a little further and a little deeper on that. We see green shoots across all of our verticals and across all of our brands in order flow and in placements. And we feel like the summer is going to produce a substantially different result than we've seen in the past. We believe that we have hit the bottom. You asked when we hit the bottom, we feel like the bottom has been hit. And like I said, we see green shoots across all verticals and all brands in order flow. So we feel very positive about the coming summer.

Thank you, Alex. Another question is business is getting more competitive. Is there overcapacity in the industry at this time? How do you see this being rationalized? I've been in the industry since the '90s, and the industry, if you look at its growth rate has been solidly upward with a few dips for recessionary periods along the way. What we're finding is because of the robust nature of technology in the verticals we're in, of the demand environment when people are confident in the economic aspects of the economy growing, for example, or at lower rates, things that right now aren't happening. When those turn, the demand usually exceeds the supply and staffing companies have more job orders than they can fill. We anticipate we'll get there again soon, but we're tracking it very tightly to make sure that our cost structure is appropriate for the revenue that we have. And we believe we'll get there. We don't believe there's an overcapacity. There's been a lot of consolidation in the industry. And if you look at the larger companies and what market share they have relative to all the other companies, it's still miniscule when compared to the totality of the entire staffing industry. What are industry indicators for the recovery? You heard some of those today, job orders coming in, across each of the verticals are up. Those are the things we look at. Here's another question. Is there a plan to look offshore to save recruiting costs in the U.S. with demand being low? Adding an offshore component to recruiting has been done successfully by several companies. And we are looking into that and would likely move forward with that, as our IT leader and his group agree that, that's a viable option to enhance our recruiting capability at a lower cost. So the answer is yes. Total cash in hand was $21.2 million. That's what it was as of March 31. Yes, correct. And it's in that range now. What do you attribute your higher than industry average gross margin on professional contract services? Alex, why don't you cover that since you're on top of the professional division as well?

As Kim noted earlier, we have a very distinct group of customers that are in the mid-market range, which are able and willing to pay a slightly higher spread than the much, much larger VMS and MSP type agreements and companies. So I believe that because of the type of customer we have and our marketing strategy that that's attributable to our higher gross margin and higher strength.

Thank you. Another question relates to turnover and retention of top producers. We have been very successful in retaining top producers. Our tenure -- our average tenure is very high, particularly with top producers. We just had our top producers on our annual sales award trip with excellent feedback from them. And we really try to take care of our people across the board, and we have hired aggressively additional top producers potentially or with experience. So we're doing pretty well on retention, and we will continue to do the right things to keep our valuable staff. Someone said they're concerned about using stock at a cheap valuation. The answer is no. That will not happen. Next question. Do you see investments in M&A that provide more returns than buying back your stock? That analysis was done by DC Advisory and made available to our Board of Directors and Management team. We studied it and concurred that at this time, that's the most optimal way to enhance shareholder value. As Kim said, in our capital allocation strategy, stock buybacks are still there. And at the appropriate time, we would initiate that if it was felt that the M&A side of the equation and organic growth weren't getting to the answer, but we do believe we will get there and we could, in fact, add both at the same time, and that's a possibility. Have you seen signs of distress in your customers' ability to pay? Alex, on the receivable side, our DSOs run about 43, 44 days correct?

That's correct. Receivables are holding at the same consistent level they have in the mid-40 range. We've had very good success with our receivables, and we don't have any signs of -- our particular customers having an inability to pay nor asking for extended terms.

Another question is they've been receiving offers to be acquired. If so, what's the premium they're offering? Are these from peers or private equity? Well, I have to say that good companies typically are called to explore opportunities to merge, to get bought or otherwise. And I think that it's safe to say that the premiums, one, as I said yesterday, was a 71% premium to the trading price of a public IT staffing company. So -- which is significant. But yes, all the time, we always get opportunities. And if it makes sense from a shareholder value standpoint, we must consider that. However, we're building this company for long-term growth and enhancing shareholder value. All 3 of us are significant stockholders in the company, and we'd like to see our equity value really accelerate as do you, our shareholder base. So yes, good companies will always get offers. The best companies continue to operate for maximum shareholder value. And of course, we will do whatever is appropriate at the right time if opportunities come in. However, at depressed prices at this level, even a 70% premium only brings you back to a reasonable trading range. So nonetheless, we are very, very confident that we will get to where we need to be from a shareholder value standpoint. And we really appreciate all of you that have been with us for some period of time and those new shareholders as well. We are working very, very hard to get the growth engine going to get the earnings back to where we want it to be, and we believe that will help influence shareholder value, coupled with acquisition growth and other capital allocation strategies as we move forward. So that concludes our call today. And one other question, someone asked about a 13G filing. We had a 13G filing, but it was an existing shareholder and a very long-term shareholder who we communicate with regularly. So there was no surprises there. So the answer to that is no, there's no surprises. And we have some very solid shareholders, including one of our directors, who owns -- who has a majority percentage of the company right now about 9%. But we're very solid with our shareholders and we appreciate your investment, and we are working hard to deliver. And that concludes our call today. Thanks again for coming on. Thanks.