Earnings Call Transcript - JOB Q1 2026

Derek Dewan, Chairman and Chief Executive Officer

Hello, and welcome to the GEE Group Fiscal 2026 First Quarter ended December 31, 2025, Earnings and Update Webcast Conference Call. I'm Derek Dewan, Chairman and Chief Executive Officer of GEE Group, and 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 2026 first quarter ended December 31, 2025, and provide you with our outlook for the fiscal 2026 full 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 the caption Forward-Looking Statements Safe Harbor and in Thursday'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 third quarter or the quarter, which refers to the 3-month period ended December 31, 2025. Likewise, when we refer to the prior year quarter, we are referring to the comparable prior 3-month period ended December 31, 2024. 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 Investor Center of our website. Now on to today's prepared remarks. The challenging conditions in the hiring environment for our staffing services have been ongoing since the second half of 2023. These stemmed from what is now widely acknowledged as the substantial overhiring that took place in 2021 and 2022 in the immediate aftermath of the pandemic and the macroeconomic weakness and uncertainties related to persistent inflation and high-interest rates that followed. The near-universal cooling effect on U.S. employment and businesses' use of contingent labor and hiring of full-time personnel have persisted and resulted in volumes below once prior norms. Many of the businesses we serve continue to implement layoffs and hiring freezes rather than adding new employees. 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. Another setback for us this quarter was the acquisition of one of our larger clients and movement of its business to an affiliate of the acquirer. This was a high-volume, lower-margin account, which somewhat lessened the negative impact on our results. Also, on the brighter side, our direct hire revenue, which has the highest gross margin at 100%, was up 8% in the quarter and appears to be on course so far for a better fiscal 2026 versus fiscal 2025. We also expect the use of contingent labor to stabilize this year as we are aware that some businesses are beginning to initiate new projects, which may be expected to lead to more job orders and full-time and contingent staffing placements. Artificial intelligence, or AI, is gaining ground at an accelerated pace and is further complicating the HR and project planning opportunities and risks facing virtually all companies, including consumers of our services. We believe these conditions are contributing to decreases in job orders for both contract and direct hire placements, also negatively impacting our financial results. Conversely, we are implementing and incorporating AI 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 to implement and support their use 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 fiscal 2025 and have been reclassified as discontinued operations and excluded from the results of continuing operations we're presenting today unless otherwise stated. Our consolidated revenues were $20.5 million for the quarter. Gross profit and gross margin were $7.4 million and 36.1%, respectively, for the quarter. Consolidated non-GAAP adjusted EBITDA was negative $97,000 for the quarter. We reported a net loss from continuing operations of $150,000 or $0.00 per diluted share for the quarter. We continue to aggressively take action 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 us improve our results despite lower business volume. We took measures to reduce our SG&A during the second half of 2025 by an estimated amount of $3.8 million, which helped us achieve the $736,000 reduction in SG&A in the fiscal 2026 first quarter versus the prior year first quarter. 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. We anticipate achieving continuing improvements in our productivity and restoring profitability as soon as practically possible. Our goal remains to be profitable again in fiscal 2026. 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. As the uncertainty and volatility currently gripping our economy and labor markets lessen, I am very confident that we are positioned to meet the increased demand from existing customers and win new business. I want to reassure everyone that we fully intend to successfully manage through the challenges I've outlined and restore growth and profitability as quickly as possible. 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 be acquisitive. We also continue to believe that our stock is undervalued and especially so based upon the recent trading at levels very near and even slightly below tangible book value. And that there is good opportunity for upward movement in the share price once we are able to operate again in more normal economic and labor conditions and restore profitable growth. Management and our Board of Directors share the responsibility and are committed to restoring growth and profitability, which will lead to maximizing shareholder value. Before I turn the call over to Kim, I want to update you on recent activity since our press release issued on January 22, 2026, in response to an indication of interest in our company. Since then, management and the Board have met to review and discuss multiple unsolicited expressions of interest in the company and continue to evaluate various strategic alternatives to enhance shareholder value. As we indicated in our press release on January 22, 2026, 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. 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 the most important ingredient for our company's 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 first quarter results.

Kim Thorpe, Senior Vice President and Chief Financial Officer

Thank you, Derek, and good morning. Consolidated revenues from continuing operations for the quarter were $20.5 million, a decrease of $3.5 million or 15% compared to the same period last year. Contract staffing services revenues were $17.8 million, down $3.7 million or 17% from the previous year. As Derek mentioned, one of our larger clients with high volume but low margins was acquired and shifted its business to an affiliate at the start of the fiscal first quarter, which accounted for $2.6 million of the revenue decline. Without this loss, consolidated revenues would have only declined by $3.8 million or 3.8%. On a positive note, direct hire revenues were $2.7 million, an increase of $200,000 or 8% from last year. Additionally, in January 2026, the first month of our current fiscal second quarter, we recorded direct hire revenue of $1.2 million, surpassing all previous months in this fiscal year. Gross profits were $7.4 million with a gross margin of 36.1%, compared to $7.9 million and a 33% margin from the prior year. The improvement in our gross margin is mainly due to the higher revenue from direct hire placements, which have a 100% gross margin, as well as a greater proportion of direct hire revenue relative to total revenue. An increase in prices and profit spreads on some professional contract services also contributed to this improvement to a lesser extent. Although the loss of the low-margin client was the main reason for the revenue drop this quarter, it also led to an improved business mix and gross margin for our remaining professional contract services. Selling, general, and administrative expenses for the quarter were $7.7 million, a decrease of $700,000 or 9% from the prior year. SG&A expenses as a percentage of revenues were 37.6%, compared with 35.1% in the prior year. In light of our current environment, we continue to focus on streamlining our core operations and aligning our productivity with our reduced business volume. We managed to reduce our SG&A by approximately $3.8 million on an annual basis in the second half, achieving overall SG&A savings of $736,000 in this quarter compared to last year, which improved our results despite lower business volumes. I want to emphasize once again that our plans and goals are aimed at restoring profitability during fiscal 2026. Alongside the initiatives Derek mentioned, we are beginning to update and further integrate our ERP and APCO tracking systems as well as other key operating systems. We also plan to consolidate some of our legal entities later this year to further cut administrative and compliance expenses. The ultimate aim of these long-term initiatives is to enhance speed, accuracy, and efficiency across our operations and ultimately achieve an SG&A ratio of 30% of revenue or less. Our net loss from continuing operations this quarter was $150,000 or $0.00 per diluted share, compared to a loss of $684,000 or $0.01 per diluted share in the same quarter last year. This improvement is largely due to cost reductions and enhanced productivity. Our EBITDA, a non-GAAP financial measure, was negative $303,000 for the quarter, compared to negative $513,000 in the previous year. Adjusted EBITDA was negative $97,000 for the quarter, improved from negative $304,000 the prior quarter. As of December 31, 2025, our current working capital ratio was 5.3:1. We maintain a strong liquidity position with $20.1 million in cash, an undrawn ABL credit facility with $4.2 million available, net working capital of $23.9 million, and no outstanding debt. Our net book value per share and net tangible book value per share were $0.45 and $0.22, respectively, as of December 31, 2025. In conclusion, while we are disappointed with our results and remain cautious about our near-term outlook, we are committed to restoring profitability and preparing for the long term through modernization efforts and enhancements, including updating our core financial and operational systems and integrating AI across our businesses. After completing the acquisition of Hornet Staffing in fiscal 2025, we plan to pursue further acquisitions in a disciplined and prudent manner with a focus on businesses centered on AI consulting, cybersecurity, and other IT consulting. Before I hand it back to Derek, reconcilations 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.

Derek Dewan, Chairman and Chief Executive Officer

Thank you, Kim. Despite the macroeconomic headwinds and staffing industry challenges impacting the demand for our services, we are aggressively managing and preparing our business to mitigate losses, restore profitability and be prepared for an anticipated recovery. What we hope you take away from our earnings press release and our remarks today from our strategic announcements is that we are moving aggressively not only to prepare for a more conducive and growth-oriented labor market, but also to restore growth by continuing with the execution on both organic and M&A growth plans and 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. We are very pleased with our 2025 acquisition of Hornet Staffing and the value and opportunities it brings and have identified other acquisition opportunities that we believe can offer additional growth and profitability platforms for us. 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. Now Kim and I would be happy to answer your questions.

Kim Thorpe, Senior Vice President and Chief Financial Officer

We have received a few questions and will address them in the order they were received. Please bear with us for a moment. The first question is about the incentives needed for management to consider a value realization event, such as a sale or special dividend. My answer is that management already has employment agreements that provide those incentives, so no additional ones are required. The second question asks if an activist investor takeover is the only way to achieve a return for shareholders. The answer is no. As we stated in the press release, both the Board and management are committed to acting in the best interest of shareholders. We have more questions coming up related to what Derek mentioned at the end of his remarks. One question is about why the company is not actively pursuing a sale at a multiple similar to a recent sale in the professional division, which would indicate significant upside to the current stock price, especially considering that the current path hasn't yielded any value for shareholders.

Derek Dewan, Chairman and Chief Executive Officer

Sure. So as you're aware, in many cases within a public company, there's nonpublic information and actions being taken that have not yet been disclosed. So as we stated in our press release at the last part of the earnings release, we do evaluate any proposals to maximize shareholder value. And someone, I think in this question, you mentioned 150% increase versus the current stock price. I would say that, that's extremely low, and that would be not what we believe is fair value for our shares. And if there is an offer, we anticipate it'll be much better than that.

Kim Thorpe, Senior Vice President and Chief Financial Officer

Okay. The next question is for someone that's concerned about the lower value of the stock having been in place for some time. When is it time for dramatic and intentional changes to be made to correct that? We agree with that. We're working on a number of new things. So that's the answer to that question. And then the next question, can you provide more color on what multiple offers you mentioned included?

Derek Dewan, Chairman and Chief Executive Officer

We can't provide specifics at this time, but evaluations are ongoing, and we will respond appropriately. It's important to remember that this is just one aspect of enhancing shareholder value. We are also focusing on cost reduction and improving profitability, as mentioned by Kim earlier. For instance, our direct hire business saw an 8% increase, which is quite impressive compared to our industry peers and maintains a 100% gross margin. Additionally, January's performance surpassed the previous three months in the first quarter. Overall, we are making internal improvements, as evidenced by the growth in EBITDA and net income. We expect continued progress as we advance into the fiscal year.

Kim Thorpe, Senior Vice President and Chief Financial Officer

I believe that's it. Those are all the questions.

Derek Dewan, Chairman and Chief Executive Officer

Thank you very much for joining us today. That concludes our call.