Earnings Call Transcript - JOB Q3 2022

Derek Dewan, Chairman and CEO

Good morning, everyone. Welcome to the GEE Third Quarter Earnings 2022 Update Webcast Conference Call. I’m Derek Dewan, Chairman and Chief Executive Officer of the company. Kim Thorpe, our Senior Vice President and Chief Financial Officer will also join the call. I’ll be hosting today’s call and we will be addressing the quarter and our outlook for the remainder of 2022. Thanks a lot for joining today. It is our pleasure to share with you our results for the fiscal 2022 third quarter ended June 30, 2022 and provide you with our outlook for the final quarter of our fiscal 2022 year end and also the outlook for foreseeable future. Some comments Kim and I will make today 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 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 included in the earnings press release. Our presentation of financial amounts and related amounts including growth rates, margins and trends 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. With that business behind us, I am very happy to report that we once again achieved outstanding results beginning with net income of $2.6 million or $0.02 per diluted share for the third quarter of our 2022 fiscal year and for the nine-month periods ended June 30, 2022 net income of $20.4 million or $0.18 per diluted share. Consolidated revenues for the three and nine-month periods ended June 30, 2022 were $41.1 million and $123.6 million, up 8% and 15%, respectively over the comparable fiscal 2021 periods. And gross profits and gross margins were $16.5 million and $46.6 million and 40.1% and 37.7%, respectively. Our non-GAAP adjusted EBITDA for the 2022 fiscal third quarter was $4.1 million, up $1.0 million or 34% over the comparable prior fiscal year quarter, and represents a 10% margin to revenue. Non-GAAP adjusted EBITDA for the nine-month periods ended June 30, 2022 was $11.5 million, up $2.8 million or 32% compared to the nine-month periods ended June 30 2021. Before I turn it over to Kim, I want to say again how very proud I am of our dedicated and talented people. They work extremely hard every day to ensure that our clients get the very best service. This is one of, if not the most important key to our success. At this time, I’ll turn the call over to our CFO, Kim Thorpe, who will further elaborate on our results for the 2022 fiscal third quarter. Kim.

Kim Thorpe, CFO

Thank you, Derek, and good morning. As Derek mentioned, revenues for the three and nine-month periods ended June 30, 2022, were $41.1 million, and $123.6 million, up 8% and 15%, respectively, over the comparable fiscal 2021 periods. Contract staffing services contributed $33.1 million and $103.5 million, or 80% and 84% of revenues, respectively, and direct placement services contributed $8 million and $20.1 million, or 20% and 16% of revenues, respectively, for the three and nine-month periods ended June 30, 2022. Contract staffing services revenues increased by $0.6 million or $600,000 and $8.7 million, or 2% and 9%, for the three and nine-months ended June 30, 2022, respectively. These increases were mainly attributable to increased demand in our professional contract services markets as the negative effects of COVID-19 lessen and the US economy and workforce continue on recovery paths toward pre-COVID-19 conditions. Direct hire placement revenues for the three and nine-months ended June 30, 2022, were $8 million and $20.1 million, up 45% and 60%, respectively, over the comparable fiscal 2021 periods. Direct hire revenues for Q3 2022 set a new high for us, and the first nine months of fiscal 2022 already have surpassed the entire 2021 fiscal year. Total revenues from our professional staffing services segment, which includes contract staffing and direct hire placement services, were $37 million and $111.6 million, and represented 90% of total revenue for both periods, respectively ended June30, 2022. Professional staffing services segment revenues were up 8% and 18%, from the comparable fiscal 2021 periods, respectively. Our IT services end markets at Agile Resources, Access Data Consulting, Paladin Consulting and SNIT accounted for 48% of our professional services business segment revenues for the nine-months ended June 30, 2022 and were up 27% year-over-year. The other professional services end markets, finance, accounting, administrative & office, engineering, healthcare, and other accounted for the remaining 52% of professional services business revenues for the nine-months ended June 30, 2022 and were up 14% year-over-year. Industrial staffing services revenues were $4.1 million and $11.9 million for the three and nine month periods ended June 30, 2022, respectively, compared with $3.8 million and $12.9 million for the three and nine-month periods ended June 30, 2021. We continued to experience some pandemic-related conditions associated with the delta and omicron variants in our Ohio markets in earlier quarters of the fiscal year, including school and business closings and interruptions, which were reminiscent in some respects of the early COVID-19 pandemic. Consolidated gross profits and margins were $16.5 million or 40.1% and $46.6 million or 37.7% for the three and nine-month periods ended June 30, 2022 both up substantially from comparable fiscal 2021 periods. Our consolidated gross margins for the last five consecutive quarters have been above 36%. The overall improvement in the Company’s combined gross profit margin is largely due to substantial increases in our direct hire placements, which have 100% gross margins. Selling, general and administrative expenses or SG&A for the three and nine-month periods ended June 30, 2022 increased $1.7 million and $7.7 million respectively. SG&A expenses were 31.3% and 30.3% of revenues for the three and nine-month periods ended June 30, 2022 respectively compared with 29.2% and 27.7% for the three and nine-month periods ended June 30, 2021. In addition to overall growth of the business resulting in additional incentive compensation and bonuses, the increases in SG&A expenses and ratios were affected by $800,000 in charges associated with two former positions that were eliminated; $300,000 during the three-month period ended June 30, 2022 and $500,000 during an earlier quarter of fiscal 2022. In addition a $400,000 increase in the bad debt expense allowance associated with one of the Company’s industrial services customers and the $1.0 million charge for the settlement of a legal matter added to our SG&A in earlier quarters of fiscal 2022. As Derek mentioned in his remarks, we achieved net income for the three and nine-month periods ended June 30, 2022 of $2.6 million or $0.02 per diluted share and $20.4 million or $0.18 per diluted share as compared with net losses of $937, or negative $0.01 per diluted share and negative $3 million or negative $0.07 per diluted share for the three and nine-month periods ended June 30, 2021. Non-GAAP adjusted net income and diluted EPS excluding the effects of non-operating and/or non-recurring items as outlined in the earnings press release were $3.1 million or $0.03 per diluted share and $8.1 million or $0.07 per diluted share respectively for the three and nine-month periods ended June 30, 2022. Adjusted EBITDA, which is a non-GAAP financial measure, was $4.1 million for the 2022 fiscal third quarter, up $1.0 million or 34% over the comparable prior fiscal year quarter. Non-GAAP adjusted EBITDA for the nine-month periods ended June 30, 2022 was $11.5 million, up $2.8 million or 32% compared to the nine-month periods ended June 30 2021. As we’ve commented in prior quarters, assuming the spread persistence and severity of COVID-19 continue to lessen we believe these types of positive results are sustainable. A reconciliation of GEE Group’s GAAP net income to the company’s non-GAAP adjusted EBITDA and reconciliations of other non-GAAP measures with their GAAP counterparts discussed today can be found in supplemental schedules in our earnings press release. To conclude our current or working capital ratio at June 30, 2022 was 3.0 to 1. Consolidated accounts receivable net of allowances for doubtful accounts at the end of the 2022 fiscal third quarter were $21.2 million, and our days’ sales outstanding performance metric or DSO was approximately 42 days. We reported positive cash flow from operating activities of $3.4 million for the 2022 fiscal third quarter and $7.8 million year-to-date and non-GAAP free cash flow of $3.4 million and $7.6 million respectively. Our cash flow from operations and free cash flow for the nine months period ended June 30, 2022 were reduced in part by payment of the first of two equal installments of deferred FICA obligations allowed under the CARES Act of $1.8 million in December 2021 and payment of $1.0 million in settlement of old and isolated legal matter made in April 2022. Our liquidity position is strong and we have no outstanding debt. Our net book value per share was $0.89 per share at June 30, 2022 and our net tangible book value per share was $0.25. Now I’ll turn the call back over to Derek.

Derek Dewan, Chairman and CEO

Thank you, Kim. The 2022 fiscal third quarter was our fourth consecutive full quarter of strong performance since deleveraging the company. Having consistently achieved profitable growth and higher margins, earnings and free cash flow for the last four quarters we now have a positive track record as well as positive momentum for the future. At June 30th, 2022, the company had over $17 million in cash and another $14 million in availability under GEE Group’s bank asset-based credit facility. GEE Group’s prospects today for future profitable growth have never been better. Absent the onset of a recession or other unforeseen events we anticipate outstanding results for our final quarter and all of our 2022 fiscal year and beyond. 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 we have shared with you today. Now, Kim and I would be happy to answer your questions. The first question we've received is about maintaining a cash reserve for M&A opportunities, but considering buying back our own stock could be a better option. Why not use the cash generated each quarter for stock buybacks? Given the current stock price and our estimate of intrinsic value, every dollar spent on stock buybacks could create approximately $0.30 to $0.40 of shareholder value. Can you provide a rough percentage of how much this is being considered, especially as we anticipate having over $20 million in cash by December? December is significant as it's the first time we can buy back stock following the CARES Act provisions related to the forgiveness of our PPP loans. Your comment about December is accurate. When our stock is trading at current levels, we believe it's more effective to buy back shares rather than pursuing acquisitions. There has been considerable discussion about share buybacks, and it's essential for everyone to stay informed. The next question is regarding insider management purchases, including directors, purchases of stock. Why hasn't there been more of it? There’s been several discussions about blackout periods and so forth. And we have a lot of activity going on in our company that precludes us because of inside information from purchasing, including results when we get toward the end of a quarter. So I think that you'll see some activity there, but it's a personal decision of directors and officers to buy stock, although we're bullish, and we own significant positions in the company, but I think that enhancing those positions is a good thing to do, particularly since our stock price is cheap relative to the peer group and relative to other metrics that are out there. So I agree with the comment. And to the extent we can do it, I think you'll see activity there. Interest, the next question is how much cash do we need to run operations? Kim, do you want to comment on that? How much cash do we need to fund the capital base?

Kim Thorpe, CFO

For almost the entire period from 2018 to early 2020, prior to the pandemic, we ran the company on approximately $3 million to $4 million in cash, which covered about one and a half to two payroll cycles. We managed to do this mainly due to the efficiency of our business. The only pressure we faced on our cash flow arose during our significant growth phase, and this strain lasted around eight to nine weeks. This strain involved paying our contracted employees before billing our clients and collecting our accounts receivable, which typically takes about 42 days. Nonetheless, our collection rate is strong compared to other businesses because we provide a critical resource and asset to our clients that supports their business operations. In summary, we successfully operated on $3 million to $4 million for nearly three years, even during a turbulent period.

Derek Dewan, Chairman and CEO

Let me add that staffing companies that handle contract staffing, along with permanent placements, typically experience improved cash flow during downturns because they collect accounts receivable faster than they spend on contract payroll. I witnessed this in 2000, 2001, 2008, 2009, and briefly during the pandemic's severe impacts on business. To answer the question, we don't require a significant amount of cash to finance payroll, which is our largest cash obligation when we're not growing. Interestingly, we tend to collect more cash during downturns, on a net basis, than we spend. However, we prefer to have the outflows increasing. This assumes that our accounts receivable are sound, and they are; we have an excellent track record in that area, our teams make effective collection efforts, and our days sales outstanding are very low. The next question is how we will fund acquisitions. Kim, please share your thoughts on that. I know we've been somewhat hesitant about it, but please go ahead.

Kim Thorpe, CFO

We begin with a blank slate for any target we consider, and we typically draw from three sources: available cash, financing, or stock. Currently, considering our stock's trading position, we likely wouldn't opt for issuing stock, but seller financing is also an option. Additionally, due to our effective deleveraging strategy, we have plenty of opportunities for senior financing from other sources. The goal is to develop an acquisition strategy that doesn't excessively leverage the company while effectively utilizing our available cash. All these factors are assessed in relation to the perceived opportunities in the acquisition. Overall, we usually start by identifying three to four funding sources when evaluating an acquisition. I should also mention earnouts.

Derek Dewan, Chairman and CEO

Thank you, Kim. The next question has three parts. First, the company is significantly undervalued at around a 30% discount to book value. What is your strategy to address this? Second, during strong financial periods, has there been interest in a merger or acquisition? Lastly, is the company considering using overseas contract labor due to the challenges in the sector? To answer the last question, we are not planning any major investments overseas. We have sufficient territory in the US and may utilize some overseas resources to support our US operations, but we do not aim to expand internationally. Regarding interest in mergers or acquisitions, the company consistently receives interest and proposals from time to time for buying parts or all of the business. However, this interest can limit our management and directors’ ability to repurchase stock, as we want to avoid a situation where stock was bought shortly before a buyout. Currently, the company is very satisfied with its growth and participation in acquisitions to expand its business, aiming for a $1 billion target. Our primary focus is to create shareholder value and opportunities for our employees. We do receive interest regularly, and I have a strong history of handling acquisitions. I previously ran a business for 17 years before achieving a successful transaction, growing it to several billion dollars, and we have tremendous growth potential here. While we do get acquisition offers and investment opportunities, we also have a solid standalone business with significant growth opportunities. Regarding inflation, I'll defer that to someone else, but I can say that we've seen some positive aspects. We’ve been able to implement price increases and adapt to higher costs for various goods and labor, which has worked out well for us. Our business model allows us to pass on costs effectively. As for acquisitions in the sector, we receive offers and prospects daily, and we know where the valuable opportunities lie. The market is active, and typically, downturns present more opportunities at lower prices. So, exercising patience is key before pursuing acquisitions in uncertain times. I mean, they're uncertain, and I would say they're always uncertain. But if we execute and continue our strategy, we're perfectly fine. And if a deal comes across the table, that's an offer that we can't refuse, then obviously will be opportunistic. Someone else said, would you do an acquisition or a buyback? The answer is on a purely mathematical basis, buybacks appear to be more effective in the short run. But we could do both. So I think that's strategically what we'll look at. Can you discuss pricing actions taken during the quarter? Kim, you want to talk about what we've done on pricing or services?

Kim Thorpe, CFO

Sure. There have been two main factors influencing our pricing. Our prices have adjusted in response to the economy, inflation, and rising wages. We determine our pricing by considering the pay we provide to our employees and contract workers. For our contract business, our prices increase as we enhance their pay, which we coordinate with our clients, who are aware of these changes. However, the job market remains somewhat unstable, and our clients are generally open to accommodating these adjustments. Regarding permanent placements, while we do not see significant price increases, our fees are based on first-year salaries, meaning as salaries rise, our fees increase as well. Overall, I would estimate our prices have risen by approximately 8% to 9% this year, primarily driven by contract work rather than permanent placements.

Derek Dewan, Chairman and CEO

Thank you. The next question is regarding analyst coverage. There's one analyst with a $2 price target. Actually, Marc Riddick is on the call. And was on the call today and also covering the company from Sidoti. So we have Marc and his coverage and you'll probably get an update from him after this report. But we are seeking other analyst coverage, and we're also marketing to a broader base of investors as well with the roadshow and other techniques.

Kim Thorpe, CFO

How much does the company have remaining in NOLs, net operating losses? And does amortization of intangibles have a similar effect? Kim Thorpe: Yes. The company has between $15 million and $20 million of NOL carryforwards remaining. That's a rough estimate. I actually saw the question and tried to open up my last 10-K, but it's disclosed in our 10-K and the tax note for those who want to look at us specifically. And then on amortization of intangibles, we amortized goodwill for tax purposes. So we do get a benefit from that, that creates in part a net deferred tax asset, but because our prosperity has been relatively recent. We have not fully recognized that yet. The accounting rules generally say, they like to take three years of improved performance before you tinker with your allowance for deferred tax assets. So that's out there somewhere in the future that could become beneficial later on. And then most of our intangibles are held in over time.

Derek Dewan, Chairman and CEO

Okay. Thanks, Kim. But the reference to the footnote in the 10-K will cover most of that question. The next question is recession is now widely expected rather unforeseen. How would you adjust your outlook for this expectation? I think there's a debate on what the definition of a recession is, but I'll tell you the real definition of a recession. Recession is when your neighbor loses his job and a depression is when you lose yours. So after that definition, I can say that we're hiring actively now and getting a lot of quality people to fill jobs and meet our recruiting needs. And I can safely say that I've lived through, let's say, one, two, three downturns. And the most material downturn was the 2008, 2009 because of the length of it, and that the financial crisis was layered on top of the economic downturn with instability in the banking system. But for that, and that was around an 18 month, 17 to 18 month downturn sailed right through it with my predecessor company, with no debt and a bunch of cash. As I said, cash flow typically goes up for a good period of time during that period. So our outlook is bullish at this point, because even if the general economy doesn't grow, the labor market is so tight that just filling existing jobs that were either cut or abandoned during the COVID downturn. There still hasn't been a recovery to that level. So, we have more job orders unfilled than we do candidates. And that continues, and I looked at a few competitors' opinions, and they concur, particularly the higher-end businesses and that's why we're focused on the higher-end professional services businesses. So, I'm not concerned much about the downturn, especially since our balance sheet is pristine, and we're highly liquid. Can you discuss current end market activities in key areas such as IT, finance, accounting, et cetera? Well, I can say that IT, finance and accounting are all robust. IT is one that allows for the most remote working and virtual working. And we have great leadership there and continue to grow that. In addition, our accounting and finance units have performed really, really well the past several quarters, because of the demand for permanent placement, and we have some highly experienced recruiters in that segment, and we're continuing to add talent, by the way across both of these segments, IT, finance and accounting. Are you starting to see any softness in permanent placements in light of economic uncertainty? I can say that, what's happened a bit is that, we see some shift from permanent hires to contract workers, during a period of uncertainty. So, we're seeing kind of the movement toward contract staffing a bit from permanent hires. And you can say, it's a try before you buy concept. We've seen it obviously several times in the past and based on my experience in the industry. And it's one that we adapt well to. So, we are lean and our productivity is so high from our recruitment personnel that we're not overstaffed by any means and I can say that we adapt to that. So, the expectation of lower permanent placements possibly if there's a recession or economic uncertainty. That happens, but we're still showing very good permanent placement activity and we've increased our contract headcount recently, which is very, very good. So, we're in great shape and we can deal with periods of uncertainty with no problem. Next question is, are you starting to see prospects for acquisitions? We discussed that previously. What has been the trend over the past few months for bill spreads, permanent placement refunds, and general demand for employment? Demand remains high, and unfilled orders persist. Permanent placement refunds are minimal and quite rare. That's about it regarding the trend, which continues to be very positive. Has there been any institutional interest or expected analyst coverage on the company? Yes. Do you see many acquisition targets? Yes, and those targets are increasing. As I've mentioned before, during periods of uncertainty, many smaller or boutique players become available. We are seeing more activity and opportunities in that space.

Kim Thorpe, CFO

Do you see many exit targets? We have that. What is the interest charge on the revolving credit facility? Yes, we have an unused portion fee, which is common for asset-backed facilities like ours, and I believe it's around 37 basis points. There are also some additional fees that the banks include, but that all contributes to fee income. There have been no borrowings on our facility since the first two weeks, which we paid off immediately.

Derek Dewan, Chairman and CEO

Okay. And can you talk about free cash flow and the need for capital near-term? I'll let you handle that one, too.

Kim Thorpe, CFO

Yes, great question. The outlook for free cash flow is very positive. Our cash flow is strong, and as a CPA, I want to be careful here. If you examine our EBITDA and adjusted EBITDA, along with their underlying formulas, and combine that with the operational cash flow efficiency I mentioned earlier, it serves as a solid indicator of our ability to generate cash flow. Our working capital is currently robust at 3:1, with half consisting of cash and showing growth. Therefore, our operating needs are well covered. As many of the questions from investors have suggested, we are continually engaging in internal discussions on the best ways to allocate our capital moving forward, considering various topics that have been raised during the call.

Derek Dewan, Chairman and CEO

Thanks, Kim. The next question says - I know that you do not have to worry about your share price relative to your NYSE listing compared to the NASDAQ, and that's true. And they're talking about trading below $1. But we would appreciate your thoughts on a potential reverse split. And this person happened to be foreign and submitting it says, you're executing well, keep on doing it, greetings from Switzerland. So the concept there is that if you're trading at a certain dollar price, certain institutional investors cannot buy your stock. So at this point, we took some dilution on the stock price when we paid off our debt with an equity offering. And we're in that recovery mode to get the share price back up through performance and execution. Stock buybacks help that, acquisitions that are accretive helped that. And then the constant reverse split, obviously, pushes your price up with fewer shares outstanding, and allows for some institutional investors for sure to participate in your company as shareholders. So all of those things are considered by our company and under discussion and review with advisers as well, and I can say that during these periods of trying to increase shareholder value and planning, it's difficult for us to buy shares if we execute on any of these particulars before we go public. So that's something that we navigate through as well relative to a prior question that I had. So are these things under consideration? They always are. And by the way, I have solicited input from our shareholders, all of you, and others and experts. And I don't get a uniform answer one way or the other, but I have a lot of experience in the area of dealing with the Street and institutional investors, and listening to what our shareholders say and potential shareholders say. So we will continue to move forward and evaluate alternatives for those types of things. But I can tell you one thing, focus on your business and execution, profitability and growth, all matter significantly and will tend to help cure the problem. And if we could boost that by other methods, we will continue to do that.

Kim Thorpe, CFO

How much revenue is still within the 90-day period on firms, what risk do you have? Kim Thorpe: We maintain a reserve on our books, which is combined for financial reporting purposes with our allowance for doubtful accounts. This reserve is updated quarterly and naturally increases when business improves. Currently, in line with Derek's earlier comments on our outlook, we do not anticipate a significant wave of cancellations as we enter a recession. While it's possible that cancellations could rise, we are not worried about a major reversal of the strong results we recently reported, aside from the reserves we already have in place.

Derek Dewan, Chairman and CEO

Okay. Thank you, Kim. Another question is I don't see information regarding bill rates or revenue-producing workers or other similar measures in the presentation. Can we get some numbers in regards to total build hours for the period and other metrics? We do have various metrics that we put out and they're in some of the public filings, they're in the presentation that's current and they're in some prior presentations. We talk about bill rate ranges for verticals like IT and accounting and finance. Our gross margin is indicative of bill rates and spreads. One thing we don't do is put out information that could be used by competitors either in pricing or shopping for customers and trying to lowball or do whatever. So, we are very sensitive to those metrics. But in terms of Kim, how many revenue-producing workers do we have? That's a pretty straightforward—

Kim Thorpe, CFO

That's a good question because we currently have about 260 to 270 full-time core employees, not including those who work for our clients. These employees are involved in sales, candidate recruitment, and support roles. Recently, we have made significant hires, including a few key players in specific markets, bringing our total closer to 300. This increase is in response to market cycles between permanent and contract staffing. We are reducing our contract resources because we see that as a major revenue opportunity moving forward, and we are focusing on select markets that offer the best potential for growth in our contract business.

Derek Dewan, Chairman and CEO

The next question addresses the competition in the market. Can you discuss the companies involved and the competitive landscape? Regarding HireQuest, we do not view them as a significant competitor. Our competitors differ based on the vertical or specialization in which we operate. For instance, in finance and accounting, Robert Half is a key competitor. In IT, particularly at the higher end, there are several boutique firms that compete with us, along with larger companies like ASGN in their premium segment. Other major staffing firms, such as Manpower and Adecco Group, which acquired MPS Group—where I previously worked—are also competitors since they absorbed our IT business. Manpower can be a competitor at times, but there are also many local players who effectively compete with us at the higher end. Robert has an IT division that goes up against our SNI IT Group. Within each vertical and specifically within that vertical, there are multiple competitors, which depend on the types of skill positions they are filling. We monitor this landscape to assess their performance, growth, and pricing when we can obtain that information. Are there any special events to be discussed at the end of the month Board meeting? There's a lot of discussion at the end of the month Board meeting and our Annual Shareholder Meeting. We will delve into strategy with our Directors. We will address all the things that have been brought up today, and we constantly do, but we'll have some very, very in-depth face time meetings with our team. Given the much higher cash balance and the consistency of the business, there's an opportunity to push, let's see, let's see this okay. Is there any opportunity to reach how are you going to get $1 billion sales we got to? How much cash balance and extend of the business? Has there been an opportunity to push the company's cost of debt down? We don't have any debt. So that answers that one. Does the company plan on expanding the scope of services from staffing and placement to online placement as well?

Kim Thorpe, CFO

Great question. Online job boards and labor exchanges are tools we can utilize, but they do not replace what we offer. It's much like how a real estate agent remains active despite the availability of online platforms for buying and selling real estate. For instance, Zillow used to engage in real estate transactions but has shifted to being primarily an information source. We have advanced tools and recently met with various job board providers and database aggregators, and no other company has better access to technology for superior tools than we do. We are agile and quick, having made significant investments, and our team is highly specialized in effectively using those tools. We've discussed with our providers how we can improve further and what additional information we can gather to make the right placements for our clients. I would emphasize that speed to market is perhaps the most crucial aspect of our business, which helps us find candidates in a competitive job market and connect them with customers. We excel in this area and our employees have extensive experience, which is invaluable. Additionally, we have implemented a robust training program for new team members.

Derek Dewan, Chairman and CEO

Let's see. So the next question is, how do you highlight your brands? We're going through a brand consolidation in certain areas or a refinement, and that will be forthcoming. We'll talk a little bit more about that as we get into the next quarter, along with recruiting and training. Can you discuss SG&A and our percentage of SG&A, along with what impacts the dollar amount and the percentage of revenue calculation?

Kim Thorpe, CFO

Yes. Approximately two-thirds of our selling, general, and administrative expenses are related to selling. This includes the salaries of our front office personnel, which consists of around 260 of our over 300 employees. We also have about 50 support staff, with some located in the field and about 40 dedicated to supporting all the businesses. We encountered a few non-recurring expenses over the past nine months, including a significant legal settlement. Adjusting for those and considering our growth, we expect our SG&A to be slightly below the 30% mark, which aligns us with several larger competitors in the industry, indicating we are operating efficiently. I assure you we are very lean in our operations and manage expenses as if they were our own. However, we also make strategic investments, such as our recent tech investments aimed at addressing cyber risks. Additionally, as mentioned, we have had promising discussions with some of our providers and aim to leverage those opportunities.

Derek Dewan, Chairman and CEO

Kim, this leads to the question about leases and whether we plan to switch some of our leased office space to virtual arrangements when the leases expire. The answer is that we will make that transition when it benefits our business. We have already done this in certain markets and will continue to do so selectively. For example, in Austin, Texas, we transitioned our IT group to a fully virtual setup. This approach is convenient due to our technology, allowing us to manage our resources remotely without the need for fixed offices. It is cost-effective and facilitates entry into new markets. Additionally, acquisitions can take various forms. We can acquire talent that enhances our business without breaching competitors' non-compete agreements, which we respect. This type of acquisition is often more affordable and less risky than acquiring a large company. However, identifying the right targets is crucial. Some individuals from competing companies can inform us about promising groups to consider for acquisition, aiding in the introduction process and creating valuable opportunities through these hires. We address all these aspects on a daily basis and remain proactive. Somebody said, are you doing anything for brand awareness? Are you doing anything to get Street exposure, analysts, and new institutional investors? The answer is yes, yes, yes, and yes, yes, yes. So expect this company to really take off and not take undue risk and not lever up to the point that we were, to get to a good footprint, and then we paid off the debt, obviously. But we're so well positioned right now, that we will get to the next level. We will increase shareholder value and price and market cap, and we're bullish about going forward. And we're not too concerned about downturns, because we've lived through them before and we're able to successfully navigate through those and come out even better. So the industry actually recovers, as you could see the post-COVID industry, recovery was super and then historically, the industry does quite well. And we'll be the bellwether going into a recession and coming out. And I can tell you, there's mixed activity there economically. Employment’s hot, continues to be. There's a little loosening, but not enough to really matter to us at this point. Hiring could be put on hold a bit, but that will increase contract business, hiring for permanent hires. And these different areas will actually contribute to our ability to get more business, actually for nimble we're quick decision-making from the level, which is me. I participate actively with the field personnel. We got great leadership out in the field, and they're well experienced. Our tenure is phenomenal, both at the recruiting and account management level and at the leadership level by vertical. So that pretty much concludes our call for today. We appreciate your interest on getting on the call, participating, investing or possibly investing if you're not already a shareholder, look for good things to happen, and we appreciate all of you as shareholders and interested parties. Thank you very much.