Earnings Call Transcript - JOB Q3 2023

Derek Dewan, Chairman and CEO

Good morning, and welcome to the GEE Group Fiscal 2023 Third Quarter Ended June 30, 2023 Earnings and Update Webcast Conference Call. I'm Derek Dewan, the Chairman and Chief Executive Officer of GEE Group, and we 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 all for joining us today. It is our pleasure to share with you GEE Group's results for the 2023 fiscal third quarter ended June 30, 2023. And provide you with our outlook for the remainder of the 2023 fiscal year and the foreseeable future. Some comments Kim and I will make today 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 Monday's earnings press release and in our most recent 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. During this presentation, we also will talk about some non-GAAP financial measures. Reconciliations and explanations of the non-GAAP financial measures we will address today are included in the earnings press release. Our presentation of financial amounts, and related items including growth rates, based upon rounded amounts, for purposes of this call and all amounts, percentages and related items presented are approximations. For your convenience, our prepared remarks for today's call are available in the Investor Center on our website, www.geegroup.com. We once again achieved very good results in the fiscal 2023 third quarter beginning with the consolidated revenues of $38.2 million. Our consolidated gross profit and gross margin were $13.7 million and 35.8%, respectively. Our consolidated non-GAAP adjusted EBITDA for the fiscal 2023 third quarter was $2.1 million. We achieved consolidated net income of $7.9 million or $0.07 per diluted share for our fiscal 2023 third quarter. As Kim will explain further, the prior fiscal year's third quarter and year-to-date results were well above normal due to record high demand for direct hire placement services, which is why we did not beat last year's numbers. Fiscal 2023's performance so far still compares favorably taken into account the operating environment and particularly in terms of the significant growth we achieved in our combined professional IT contract businesses and other brands. Before I turn it over to Kim, I'm excited about the quarter. June 2023 quarter was our eighth consecutive quarter of profitability and free cash flow generation since we completed our restructuring and deleveraging initiatives in June of 2021. Our operating performance and financial results have been on par with and better in some respects than our larger industry peers, led by significant growth in our IT brands and positions us very well for future growth and in increasing the shareholder value. Our performance through the June 2023 quarter also allowed us to recognize a deferred tax benefit of $6.8 million. This event alone added approximately $0.06 to the quarter's earnings per share. Kim will cover this very positive development in a few moments. We implemented our $20 million in late April 2023, which now comprises a key component of our capital allocation plans. As of June 30, 2023, we had repurchased 870,000 of our common shares. And to date, we have purchased nearly 1.5 million JOB shares. At current prices, we intend to continue share repurchases and also are working on enhancements to the repurchase program. I want to assure everyone that we fully recognize our stock is presently undervalued and there is substantial room to grow. As a matter of fact, most publicly traded firms are trading well below market indices and the 52-week highs due to environmental concerns, and therefore, we believe our entry in the entire industry group, including JOB has tremendous upside potential. Measuring forward from the time we announced the funding of our follow-on offering on April 19, 2021, GEE Group stock has outperformed most of its public staffing industry peers, including several of the largest players. Finally, before I turn it over, I want to once again thank our wonderful dedicated people that work extremely hard every day to ensure that our clients get the very best service. They are the key factor in the outstanding performance GEE Group achieved in fiscal 2022 and so far in fiscal 2023 and will continue to be the most important driver of our company's future success. At this time, I'll turn the call over to our CFO, Kim Thorpe, who will further elaborate on our fiscal 2023 third quarter results. Kim?

Kim Thorpe, CFO

Thank you, Derek. Good morning. Our consolidated revenues for the three and nine months ended June 30, 2023, were $38.2 million and $118.2 million, which were lower overall compared to the same period in fiscal 2022. The decrease in revenues for fiscal 2023 was primarily due to a record high in direct hire placement revenues in 2022. Despite these challenges, there are positive results, particularly in our professional contract services led by our IT brands. Our financial performance in fiscal 2023 is comparable and even better in several aspects than other publicly traded staffing companies, and we remain reasonably optimistic about our performance for the rest of the fiscal year. In the third quarter of fiscal 2023, our professional and industrial contract staffing services reached $33 million, close to the revenue levels of the third quarter of fiscal 2022. The revenue from professional contract staffing, our largest segment, constitutes 90% of all contract services revenue and 78% of our overall revenue, increasing by $800,000 or 3% from the previous quarter. Notably, our professional finance, accounting, office, and IT contract services revenues grew, with IT revenues achieving 9% growth year-to-date. IT contract services now make up 59% of our professional services contract revenue, with combined IT direct hire and contract services revenue accounting for 49% of our total revenue. Direct hire placement revenue for the third quarter of fiscal 2023 was $5.2 million, down from $8 million in the same quarter of fiscal 2022, which was a record high year for direct-hire placement services. Our direct hire placement revenue for the nine-month period ending June 30, 2023, stood at $15.8 million. Industrial staffing services revenues were $3.2 million, making up 8% of total revenue for the fiscal 2023's third quarter. We continue to face growth challenges in our light industrial markets, partially due to ongoing COVID-19 relief programs available to workers in Ohio, which tend to result in reduced work hours among our light industrial temp workers to maintain government-subsidized benefits. Recent inflation has also led us to raise hourly wages and benefits for our contingent workers in Ohio, creating increased competition among staffing firms in that market. We are actively launching new sales and recruiting initiatives to attract and retain candidates and restore growth in our industrial segment, while also implementing successful price increases in Ohio to help counter inflation and labor challenges. For the third quarter of fiscal 2023, gross profit was $13.7 million, down $2.8 million or 17% compared to fiscal 2022's third quarter gross profit of $16.5 million. Gross margins stood at 35.8% for fiscal 2023 and 40.1% for 2022. The declines in gross profit and gross margin are primarily due to lower direct hire placement business, which typically has a 100% gross margin. Increased contractor pay due to inflation has also compressed spreads within our professional services. We have recently escalated counter-inflationary increases in markups, bill rates, and spreads to address the margin contraction. Despite the decline in gross profit and margins, our current margins remain quite high and competitive compared to our peers. Selling, general, and administrative expenses for the third quarter of fiscal 2023 decreased by $1.1 million or 9% compared to fiscal 2022's third quarter, with SG&A expenses representing 30.8% of revenues in fiscal 2023 versus 31.3% in fiscal 2022. In late February and March 2023, we implemented cost reductions estimated to save around $4 million annually. We continuously monitor operating costs amid inflation and seek opportunities for further cost reductions. We are starting to see the positive effects of these counter-inflationary measures and targeted cost reductions in our expense ratios and margins. Our net income for the third quarter of fiscal 2023 was $7.9 million, or $0.07 per diluted share, compared to net income of $2.6 million, or $0.02 per diluted share, for the third quarter of fiscal 2022. The increase is primarily due to a deferred tax benefit of $6.8 million recognized during the quarter related to the reversal of a 100% valuation allowance against our deferred tax assets. This allowance has been in place since the acquisition of General Employment Enterprises by Scribe Solutions in 2014, and its release required us to show historical profitability and an outlook indicating the allowance was no longer necessary. Adjusted net income, a non-GAAP financial measure for the third quarter of fiscal 2023, was $8.1 million, or $0.07 per diluted share, compared to $3.1 million, or $0.03 per diluted share, for the third quarter of fiscal 2022. Adjusted EBITDA, another non-GAAP financial measure for the third quarter and year-to-date ended June 30, 2023, was $2.1 million and $5.8 million, respectively, compared to $4.2 million and $11.5 million for the same periods in fiscal 2022. The decrease in revenue from direct hire placements in fiscal 2023 is a significant factor in the decline, alongside ongoing inflationary pressures, particularly regarding wages. We expect the cost reductions implemented earlier this year to continue alleviating inflationary impacts on costs and expenses. We will also take further actions as needed to enhance our margins and profitability. Our working capital ratio as of June 30, 2023, was 4.1:1, an increase from 2.7:1 at September 30, 2022. Adjusted free cash flow for the nine months ended June 30, 2023, was $4.3 million, excluding the effects of the final installment of deferred FICA taxes of $1.8 million that were deferred under the CARES Act and paid in December 2022. Our liquidity remains strong, with no outstanding debt. Our net book value per share was $0.96 at June 30, 2023, and our tangible book value per share was $0.35, both of which have increased significantly since September 2022. Additionally, we have repurchased nearly 1.5 million shares of common stock in open market purchases at an average price of $0.52 per share since the program began on April 27, 2023. In conclusion, we maintain a positive outlook for fiscal 2023, keeping in mind the uncertainties present in our operating environment. Before I pass it back to Derek, please refer to the reconciliations of our non-GAAP financial measures discussed today with their GAAP counterparts in the supplemental schedules within our earnings release. I will now turn the call back over to Derek.

Derek Dewan, Chairman and CEO

Thank you, Kim. The fiscal 2023 third quarter marked our eighth consecutive quarter of strong operating performance since deleveraging the company, having consistently achieved higher margins and free cash flow for the last eight quarters. We continue to build a positive track record as well as a positive momentum for the future. At June 30, 2023, the company had no debt and over $20.7 million in cash with $12.4 million in availability under our bank ABL credit facility. GEE Group's prospects today for future profitable growth continue to expand and improve despite macroeconomic headwinds and unforeseen events.

Kim Thorpe, CFO

Derek, I'll take it over from here. I think we lost you. What Derek was saying is despite macroeconomic headwinds and unforeseen events, we will continue to work hard for the benefit of our shareholders and expect to deliver solid results for fiscal 2023 and beyond, significantly increasing shareholder value. Before we pause to take your questions, I want to again say for Derek and I, a special thanks to our wonderful people for their professionalism, hard work and dedication. As we said, without them, we could not have accomplished all the good things we shared with you today. Now Derek and I would be happy to answer your questions. Please just ask one question and rejoin the queue with follow-ups as needed. If there's time, we'll come back to you for additional questions. And I'm going to give Derek just a minute to see if he can come back on the line before I begin answering questions. Okay. In the interest of time, we have one question in the queue. Which is, can you explain the structure of the business? Are the professional contract services and direct hire segments run separately? Or do they share staffing and/or customers? Thank you. That's a good question. The businesses, the products or the services, if you will, are very different. All of our brands with a couple of exceptions, light industrial being one and medical have both direct hire services and professional contract businesses. The customers can overlap, but they're not necessarily the same customers. I'm not sure of the proportion with which they overlap, but I would guess that in most cases, they are separate, but that's a guess. But thank you for the question. I have another question in relation to 2019 and 2022, what are you expecting for Q4 '23 and the full year of 2024? I'm going to presume that the question is, how do we think we're ultimately coming out on a trend from pre-COVID to post-COVID? 2022, again, was a very record year. I think there was some significant catch-up in 2022 as we continued in 2021 to kind of slowly come out of the pandemic. There were variants of COVID and things like that. And there were also new paradigms in the workplace that were being assimilated. And so in 2022, I believe there was some catch-up, and there was a lot more direct hire business in that year. And I wish Derek were here to share the points.

Derek Dewan, Chairman and CEO

I'm here. I lost the connection for a second, but.

Kim Thorpe, CFO

Okay. Derek, I'm looking at a question, and I was just answering the question in relation to 2019 and 2022. What you guys expecting for Q4 '23 and 2024. And I was giving some color to that. I think a lot of it will depend on how we weather through the uncertainties that are still out there, I mean inflation, although it is there are different points of view as to how much under control it's becoming and when. And there are different points of view about a recession or a potential recession. So all this will have a bearing on it. But I continue to think that we will perform very well relative to our industry peers. Derek, do you want to add to that?

Derek Dewan, Chairman and CEO

Yes. I'll add something. The outlook for the macroeconomic environment is choppy in 2023. We're seeing some ups and downs. Clearly, permanent hires reached a peak in 2022, but we see strength in 2023 relative to the non-2022 years, as you suggested. The outlook for the summer of 2024 is anticipated to be strong versus any recessionary trends that we're in now. I would say that it's a bit choppy on permanent hires now. Our contract business is doing quite well and holding up. Our pricing power is pretty good and our profitability will continue to be good. Cash flow is great. And I think that you should expect good things going forward as we do.

Kim Thorpe, CFO

I am pleased to share that we recognized over a year ago that inflation was affecting us, leading to wage increases not only for our core staff but also for our temporary workers. For our temporary staff, our pricing structure includes a built-in hedging mechanism, starting with their hourly rates and adding a spread. Beginning in May of last year, we actively instructed our businesses to approach clients for price increases. Over the past 12 months, we have achieved low to high single-digit rate increases in some cases. In our industrial business, we have even seen double-digit rate increases. Moving forward, we will likely place greater emphasis on rates while staying mindful of inflation.

Derek Dewan, Chairman and CEO

Okay. The next question is a question about the scope of review for strategic alternatives that the Board of Directors decided to take a look at. The concept there is to get an investment bank or another consultant to just take a look at all the different alternatives in corporate structure, acquisitions, buybacks and so forth to see if we're maximizing the utilization of all the tools we have to enhance shareholder value. So it's a good healthy check. We'll call it like a physical checkup, and we expect to get some good benefit out of that. The next item is, can you expand on the strategic review? Again, we'll let you know more after that happens.

Kim Thorpe, CFO

Shares were trading over $1.50 before the COVID pandemic with over $108 million in debt that you paid off over two years. Can you provide a breakdown of the professional contract services revenue, including IT, finance & accounting, and how that evolved over the past two years? Kim, could you discuss both the capital structure and the different verticals and their current status? The shares are trading at their current level due to dilution caused by the increase in the number of shares outstanding. Before COVID, we had 18 million shares, but to raise funds for paying off the remaining $108 million debt, we issued nearly 96 million shares. This explains the drop from $1.50 to the current price range. Additionally, various market forces are affecting the staffing industry as a whole. In terms of professional contract services revenue, IT accounts for 59%, with Finance and Accounting being the second largest sector. Together, these two sectors make up about 85% to 90% of our revenue, with medical, engineering, and other professional specialties making up the rest. Over the last two to three years, IT has been growing and becoming a larger part of our professional services revenue, mainly due to its expansion during the pandemic. One of our IT brands actually saw growth during this time, which was unexpected, as many office locations closed and employees shifted to remote work, creating more demand for our IT services. While some IT segments experienced revenue losses during the pandemic, the IT sector remains a highly sought-after area in professional staffing, yielding higher valuations and being less affected by economic fluctuations due to its integral role in our overall infrastructure.

Derek Dewan, Chairman and CEO

No. I think you did great. Thank you. The next question is about your client industry verticals. We are fortunate to have diversity in our clientele. Four major segments of our clients belong to telecom, tech, manufacturing, and financial services. Within these sectors, we employ a range of professionals including finance experts, controllers, accountants, analysts, and more. We have a banking specialty group focused on permanent placements and a significant presence in tech departments for IT job placements across all sectors. Our diversity means we are not overly reliant on a single industry segment, which is beneficial during fluctuations. We feel lucky in this aspect, and our client penetration rate is strong. We continue to gain more business from existing clients as well as attracting new clients, which puts us in a fortunate position. Okay. The next question, can you elaborate on the agreement with Red Oak? Red Oak is our largest shareholder and representing our largest shareholder is David Sandberg, who joined our Board. We put that information out publicly. Mr. Sandberg is very experienced and will add value to the organization, and being our largest shareholder it's a great representation for the shareholder base. The agreement is public. So feel free to read that. There was an 8-K filed with it. Next question, would a sale or private going-private transaction take place? That's a great question on the table. So the answer to that is there are always people that propose alternative structures, M&A, and I've been involved in that over a period of time. We have acquired five companies and we can continue that path. Our capital allocation strategy contemplates the ability to buy back shares and to do strategic acquisitions if they're priced right and accretive to our earnings. So we're very fortunate there, too. And I think our strategic review will prove out the best alternatives for capital structure, use of our cash and so forth and other alternatives. So I can tell you that we have high expectations for our company in terms of its performance. And we also have high expectations for our share price to move forward. The next question is, is the option of selling GEE Group and a structured process on the table? As a fiduciary for shareholders, being the Chief Executive, you have to always look at what's in the best interest of shareholders. So at this point, I can tell you there's no sale process going on because we would be public to the extent that we could be with that but options are always available across the board as they should be in a public environment. I ran a company for 17 years and had several offers, the MPS Group, which started out as AccuStaff. And at one point, the offer was too good to be true. And it materialized and it was in the best interest of shareholders, and then we executed that offer and it proved to be the absolute right decision for both the acquirer and shareholders and for all the employees that continued on with the acquirers. So events happen; our goal is to maximize the profitability and value of our company as a stand-alone. And if someone wants to buy our company, then they can put an offer on the table as they should, and it's a public company, if it's a good deal, it gets presented to shareholders. And I mean, that's the typical format that a CEO must take running a public company. So we feel great about our position in the industry and where we go. And we will always look at strategic alternatives as we should that are in the best interest of our employees and shareholders. So we feel real good about our prospects across the board as a standalone. And also when we do our strategic alternative analysis, we'll see what that develops into in terms of capital allocation, some other things that we could do. The next question asks about the 50% requirement of outstanding stock that Red Oak must own. If they don't meet this requirement, Mr. Waterfield could be removed from the Board. Mr. Waterfield and Mr. Sandberg are currently on the Board and will remain active members, which we are pleased about. This provision means that Mr. Sandberg and Red Oak need to maintain a certain equity interest in the company to keep his Board seat according to the agreement. However, it does not mean he must leave if the Board prefers he stays. This provision ensures that our Board members, especially those with a significant shareholding, remain involved as long as it's beneficial for them. We also included a clause stating that if their ownership drops below the required level, the Board could request their departure. The experience and financial knowledge these two Board members bring is significant, and we intend to leverage their expertise alongside that of all our Board members. We look forward to collaborating with our new Board members.

Kim Thorpe, CFO

Can you give us an update on the acquisition pipeline and industry consolidation? The acquisition pipeline is good. We've been very picky because 2022 was a banner year for the industry, particularly with permanent placement or direct hire. So we don't want an aberration in terms of results to be utilized in negotiating a purchase price for an acquisition. What we like to see is a trend line over time showing what the average growth rates are and what the profitability looks like as well and so forth. There are opportunities. We'll look at them every day. We're picky as we should be. And we're likely to look at both being an acquirer and also merging with peer groups if it makes sense in the industry and other strategic alternatives. But it's still robust. There's still a lot of activity. It's not what it was a couple of years ago, but it will kick up again once people get certainty on the economic environment. Economic uncertainty puts a lid on activity, and that lid should be lifted as people get more certain about the economic environment and political environment as well.

Derek Dewan, Chairman and CEO

How many shares could you buy back per day now? So that's a great question. I'm glad to ask pursuant to your 8-K. So we just put out an announcement this morning on a 10b5-1 plan. And briefly, that allows us to buy back even when there's material nonpublic information and we explained that in our release and also the 8-K that was filed. So it will allow us to continue to buy even at times where there might be a blackout or other prohibition in the normal course. The 10b5-1 works in conjunction with 10b18. 10b-18 sets volume limits on how much we can buy every day and also price points. We can't make the price go up just arbitrarily, but we could be in the market like any other shareholder and participate up to the volume limit, which is four weeks, the average trading volume for the prior four weeks.

Kim Thorpe, CFO

25% is that I believe.

Derek Dewan, Chairman and CEO

That's correct. You can look at 10b-18 for reference on that. So in any event, we are buying the maximum at this time, and we'll continue to do so as our free cash flow continues to be very good, and we have a lot of cash. So we put the 10b5-1 in so that we wouldn't be limited with blackout periods pretty much or if we have material nonpublic information, it would preclude us from buying back shares. One of the things that the prior question was your stock price was higher, you did an equity offering, you paid off debt. The buyback makes a whole lot of sense in mitigating the dilution from issuing a lot of the shares. Kim, do you want to elaborate on that?

Kim Thorpe, CFO

Yes, we did issue almost 96 million shares in April 2021 and have since bought back 1.5 million shares. There's still a long way to go. In certain situations, we are permitted to acquire blocks of shares, but there are specific rules surrounding those scenarios. Over time, we have positioned the company to generate cash, maintain significant cash reserves, and continue supporting the buyback program. As time progresses, let's consider the current price level, which we don't expect to remain the same. However, if it did, we would eventually repurchase enough stock to drive the share price up due to the nature of stock buybacks. With the $20 million program approved, the Board at the end of December this year can renew it, and we would almost certainly do so under these circumstances. This sets up a scenario where, in addition to earnings, we enhance shareholder value by reducing the number of outstanding shares.

Derek Dewan, Chairman and CEO

Thanks, Kim. Another question that we had are tuck-in acquisitions basically on the horizon. Tuck-in acquisitions make a lot of sense. They're easy to integrate and can add immediate value to our company in terms of revenue, EBITDA and also brings talent to the organization that we can use to help serve existing clients as well as the clients that come in with the acquisition. So yes, tuck-in acquisitions make sense for us. We anticipate that we will do those. And they're not in lieu of the capability of buying back stock; they're in addition to. Fortunately, we have enough cash and cash flow to do both.

Kim Thorpe, CFO

The next question that we have is, your net operating loss carryforwards. Kim, do you want to comment on that? Let me get back to you with the exact number. It's included in the last 10-K, and I can estimate it based on that, but I believe it's around $18 million. I don't have the exact figure right now, but I will find it and report back shortly.

Derek Dewan, Chairman and CEO

Okay. Great. Another question is, are your shares trading at 4 times the EBITDA run rate right now, net of the cash? Yes, I think that's the 4 times run rate. It represents the undervalue we're at, considering that normalized EBITDA. We've reached some high numbers in the past in the $12 million to $14 million range. So, I believe you're accurate in your calculation of where we're at today. This indicates there's tremendous upside, which we expect to see as the economy improves and through actions we're taking internally on pricing, cost reduction, cost control, new business development, and bringing in strategic acquisitions. Buybacks don't increase EBITDA, but they do increase earnings per share and reduce the share count. Thus, the combination of all these different programs will create value for us moving forward and enhance shareholder returns. How many shares could you buy back a day? We have that information.

Kim Thorpe, CFO

Yes, Derek, regarding the NOLs, we had $17.7 million on a federal tax basis at the end of last year. If we compare that roughly to this year's year-to-date pretax income, it leaves us with around $12 million or $13 million. However, there are other adjustments to consider. I don’t have an exact figure, but they are still significant. Hello? Derek, are you there? Okay, I’ll continue. There was a comment about our net income, noting a $6.7 million gain on taxes. We've discussed this previously. Essentially, since our inception, we’ve been required to maintain a 100% allowance against the deferred tax asset. This deferred tax asset is partly due to our NOLs and other timing differences, especially the fact that we amortize intangibles and goodwill for tax purposes, which we don’t do for book purposes. The crucial factor in recognizing your deferred tax assets is demonstrating more positive than negative evidence to pass the more likely than not test. The primary aspect of this is proving consistent profitability; the standard guideline is 12 consecutive quarters of consistent profitability, which we have achieved through June of 2023. This allowed us to reverse the majority of the asset, and a small portion, about 10% of it, will reverse in the fourth quarter as it becomes part of the overall calculation.

Derek Dewan, Chairman and CEO

How much cash are you targeting to use for buybacks on a quarterly basis given the stock remains depressed? Our cash position is strong; we have nearly $21 million in cash. We're generating cash, and considering our rate of open market purchases, we're not in any danger of running out of cash due to stock buybacks. We will continue to buy back stock aggressively. With the implementation of the 10b5-1 plan, we will be able to do even more in this area. We don't have a specific budget per site, but as long as we maintain our excess cash, you can expect us to be quite aggressive, especially since the stock remains undervalued. Regarding the expected SG&A expense as a percentage of sales, our goal is to reduce it to 30% or below. However, this is impacted by some ongoing uncertainty in the economy, particularly inflation and the potential threat of a recession, which may cause our clients to hesitate in utilizing our services. Once the economy stabilizes, we anticipate performance will improve, and with our current initiatives, we are aiming for a 30% or lower SG&A ratio to revenue. That's our target.

Kim Thorpe, CFO

GEE Group has made changes to our buyback program. We have recently restructured our Board by adding three new members, which has led to a reinvigoration. We have implemented a stock repurchase program, and as mentioned in the Q&A, we will be exploring strategic alternatives. I am confident that a tender offer will be among the options for the Board to consider.

Derek Dewan, Chairman and CEO

Are there any other large activist shareholders in the company since the price is severely undervalued relative to book? As of now, none that we know of. We know that there are some shareholders out there that have been potentially involved in other activist activities. But as of today, there are none. There could always be that. We have a lot of cash. We're performing well. There's new interest now. We're excited to have Mr. Sandberg and Waterfield join the Board. We have another new Board member, Jyrl James, who we haven't acknowledged yet. Jyrl joined our Board effective with this last round of reorganization. She is a tremendous executive and an attorney. She was the General Counsel for Adecco, which is the successor company to Modis, but her time at Adecco was after Derek's and our Board members that came from Modis. She's very pleasant, and I think she will add a lot of value to the Board as well. Could you elaborate on the task of the Director's seat which is related to M&A? What impact does it have on your M&A strategy? We have an M&A committee. Mr. Sandberg and Mr. Waterfield have joined that committee, as indicated in the documents, and we expect to have a very robust discussion around M&A. But as of now, there are no plans, or a detailed agenda has not been set for that committee.

Kim Thorpe, CFO

Can you provide an update on candidate availability, especially by job level or skills? This is a great question regarding the company's operations. I believe candidate availability has improved over the past year. However, there are still areas, particularly in the light industrial sector and to some extent in finance, accounting, and office roles, where we think there is some catching up to do. We monitor this closely, and there's a chart in our corporate presentation on the outlook page that tracks commercial deposits in banks across the United States, prepared by the Federal Reserve Bank in St. Louis. We analyze the trend lines on that chart, which indicate that there is still a significant amount of excess money in the economy, impacting the labor participation rate, which remains below pre-pandemic levels. We are seeing the labor participation rate beginning to rise, and we believe these two trends will converge, bringing us back to a pre-pandemic situation. Candidate availability is always a priority for us, and right now, it remains reasonable and in line with our peers. Where are your taxes going forward? Assuming your quarterly pretax income is $1 million, what would your cash taxes be? As of the end of last fiscal year, we still had about $17.7 million in net operating losses to utilize, with roughly $6 million that can definitely be carried forward. We expect this to reduce our cash federal taxes. Additionally, we have about $14 million in net operating losses for state tax purposes. Currently, almost all of our cash taxes are paid to state and local income tax jurisdictions. Our overall tax rate is likely around 4.5% to 5%, which is a good average for state income tax rates.

Derek Dewan, Chairman and CEO

What is the Q4 forecast? And what is your plan for the company, $1 billion in sales or a tender offer sale? Our Q4 forecast, as we said on the call, we are reasonably optimistic that it will be good. Where it's going to come in relative to last Q4 or where it's going to come in relative to Q3 we're not sure yet, but we think it will be reasonably good. We've taken out a lot of costs, as we talked about. And so far, so good. $1 billion in sales, that's a long-term goal for the company. Obviously, that would be achieved through a combination of M&A and organic growth. All these questions, again, will be taken up by the Board as it looks at strategic alternatives. After the quarter, the cash position has changed due to additional buybacks. We have approximately 1.5 million shares outstanding minus the 870,000 shares that we purchased since June 30, which were included in the earnings release. The remaining difference is around 700,000 shares, and you could estimate the market value of those, likely around 350,000 to 400,000. Regarding the deferred tax assets, I have covered that previously. Please refer to the earnings release and the 10-Q for more detailed information. Can you discuss other assets and liabilities, which have experienced significant fluctuations? The changes in other liabilities have been pronounced. Since 2020, there has been $3.6 million of deferred FICA included in that figure. Additionally, in this quarter, with the removal of the allowance from the deferred tax asset, we transitioned from a net deferred tax liability to a deferred tax asset, which has been reclassified against other assets. This also contributed to the volatility in those other assets and liabilities. I noticed when your price targets stand at $2. Since I've been a shareholder, I think the team is doing an amazing job, which people know. However, people are aware that you only help find jobs in the U.S.A. and that there are risks outside the U.S. I'm not sure I completely understand the question there. It's a little bit muddled. There is another Red Oak's prior demand was to split the CEO and Chairman role after the cooperation agreement. Does this mean Derek is still the Chairman of the Board? Yes, I'm here. I've been here. You're doing a great job.

Kim Thorpe, CFO

If you examine the cooperation agreement carefully, it's clear that one of the key governance principles for public companies is ensuring that board members are independent and that there is not excessive concentration of power among directors. Objectivity on the board is essential from a governance perspective. One recommendation from Red Oak was to separate the roles of CEO and Chairman. An alternative solution was to appoint a Lead Independent Director. According to the agreement, a Lead Independent Director has indeed been appointed, which is Tom Vetrano, who is an outside Director and has been on the Board since 2020. We believe this decision enhances our governance and meets Red Oak's expectations as well. Additionally, we are open to considering suggestions from shareholders and will take appropriate action when necessary. We are pleased with our decision and the cooperation agreement we've established, allowing us to refocus on our goals, including improving our share price. Regarding a $2 price target, I think that's a reasonable benchmark. Personally, I aim even higher, but we must progress methodically. It is indeed possible for this company to achieve a $2 price target, provided we deliver the right results, have favorable macroeconomic conditions, and gain some momentum. I have experienced multiple cycles in this role and my previous company, successfully generating significant shareholder value. Thank you for your insightful comments and observations.

Derek Dewan, Chairman and CEO

One other question before we conclude. What is the target price, 1.2, 1.4, or 2? The analyst community currently has the target price at $2. We need to take each step at a time. Not long ago, we were trading over $1 per share, reaching $1.80 before the equity offering. These are all stepping stones toward achieving a higher target. We will not be satisfied until our share prices reach much higher levels, enhancing our market cap and providing value for all shareholders. We remain optimistic and appreciate your investment and support. We look forward to positive developments ahead. Thank you. That will wrap up the call for today.