GEE Group Inc. 2026 Q3 Earnings Call

Hello, and welcome to the GEE Group fiscal 2026 third quarter and year-to-date period ended June 30, 2026, earnings and update webcast conference call. I am Derek Dewan, the Chairman and Chief Executive Officer of GEE Group. I will be hosting today's call, and joining me as the 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 third quarter and year-to-date period ended June 30, 2026, and provide you with our outlook for the remainder of the fiscal 2026 year and the foreseeable future. Some comments Kim and I will make may be considered forward-looking, including predictions, estimates, expectations, and other statements about our future performance.

These represent our current judgments of what the future holds and are subject to risks and uncertainties that actual results may differ materially from our forward-looking statements. These risks and uncertainties are described below under forward-looking statements, safe harbor, and in Wednesday's earnings press release and our most recent Form 10-Q, 10-K, and other SEC filings under the captions "Cautionary Statement Regarding Forward-Looking Statements" and "Forward-Looking Statements 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 quarter or the quarter and this year to date or the year to date, which refers to the three or nine-month periods ended June 30, 2026, respectively.

Likewise, when we refer to the prior year quarter or the prior year to date, we are referring to the comparable prior three and nine-month periods ended June 30, 2025, respectively. When we refer to the prior sequential quarter, we are referring to the three-month period ended March 31, 2026. 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 section on our website, www.geegroup.com. Now on to today's prepared remarks.

First, I am pleased to share that our GEE Group reported improved financial results, including net income for this quarter and year to date. We performed very well despite a choppy hiring environment, which has an impact on the demand for the company's staffing services. 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. We performed well in light of the challenging macroeconomic conditions and the acquisition of one of our larger, higher volume, lower margin clients who moved their staffing services to an affiliate of the acquirer earlier this fiscal year.

The company's improved financial performance was driven by our growth in direct hire placement revenues, which have the highest gross margin at 100% and are up 16% for the quarter and year to date and appear to be on course so far for a better fiscal 2026 versus fiscal 2025. We also expect and are optimistic that the use of contingent labor will stabilize this year as we are aware that some businesses are beginning to initiate new projects, which we anticipate will lend to more job orders and temporary staffing placements. Artificial intelligence or AI is gaining ground at an accelerated pace and is further complicating the human resources landscape, creating both challenges and opportunities for businesses, including the consumers of our services.

We believe the uncertainties created by recent macroeconomic conditions and the acceleration in the use of AI are factors contributing to the volatility in job orders for both contract and direct hire placements. However, AI will benefit GEE Group as we are implementing and incorporating it 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 solutions to implement and support their uses 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 the fiscal 2025 and were reclassified as discontinued operations being excluded from the results of continuing operations for the fiscal 2025 periods. We'll make comparisons today. Our consolidated revenues were $20.8 million for the quarter and $60.8 million year to date. Gross profit and gross margin were $8.3 million and 39.9%, respectively, for the quarter, and $23.1 million and 38%, respectively, year to date. Consolidated non-GAAP adjusted EBITDA was $570,000 for the quarter and $582,000 year to date. We reported net income of $566,000 for the quarter and $430,000 year to date. We continue to aggressively take actions 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 improve our results despite lower business volume. We took measures to reduce our SG&A during the latter portion of fiscal 2025 by an estimated annual amount of $3.8 million. These cost reductions and others realized so far in fiscal 2026 have contributed $1.1 million to our decrease in SG&A for the quarter and $3.5 million year to date versus the comparable prior year periods. 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. Our results for the quarter are encouraging, and we remain cautiously optimistic that we can improve them in the last quarter of fiscal 2026 and beyond.

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 and are well-positioned to meet the anticipated increased demand from existing customers and expect to win new business. 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 execute on strategic opportunities.

We also continue to believe that our stock is undervalued, and especially so based upon recent trading at levels very near and even slightly below tangible book value, and that there is a good opportunity for upward movement in the share price as we deliver growth and sustainable profitability, which will lead to maximizing 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 are the most important ingredient for our company's current and 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 third quarter and year to date results.

Kim? Thank you, Derek, and good morning.

As Derek mentioned, we reported net income of $566,000, or one cent per diluted share for the quarter ended, and $430,000, or zero cents per diluted share year to date, as compared with net losses from continuing operations of a negative $401,000, or approximately zero cents per diluted share for the prior year quarter, and negative $34.0 million, or a negative 31 cents per diluted share for the prior year to date. The comparable prior year to date period included a $22 million non-cash goodwill impairment charge and a $9.7 million provision for income taxes that was attributable to an increase in the company's valuation allowance on its deferred tax assets. These non-cash charges alone accounted for approximately 93% of our fiscal 2025 year to date net loss.

In addition to the absence of these non-cash charges in fiscal 2026, we have been able to grow our direct hire revenues significantly, improve our gross margins, and realize the benefits of the cost reductions and productivity improvements we began implementing in the latter portion of fiscal 2025, and others realized so far in fiscal 2026. Our adjusted EBITDA, a non-GAAP financial measure, was $570,000 for the quarter and $582,000 year to date, improving from negative adjusted EBITDA of a negative $25,000 and a negative $918,000 for the comparable prior periods, respectively. EBITDA, which is also a non-GAAP measure, was $444,000 for the quarter and $149,000 year to date improving again from negative EBITDA of a negative $270,000 and a negative $1.7 million for the comparable prior year periods, respectively.

One of the bright spots in our results so far in fiscal 2026 has been our ability to grow our highly profitable direct hire placement revenues. These were $3.8 million for the quarter and $9.7 million year to date, up approximately 16% and 10%, respectively, from the comparable prior year periods. Additionally, direct hire placement revenues were up 18% from the prior sequential quarter. As Derek also reported, consolidated revenues were $20.8 million for the quarter and $60.8 million year to date, down 15% and 17%, respectively, from the comparable prior periods. Contract staffing revenues were $17 million for the quarter, and $51.1 million year to date, down 20% and 21%, respectively, from the comparable prior periods. As Derek also reported, one of our former higher volume, low margin clients was acquired and moved its business to an affiliate of the acquirer at the beginning of our fiscal 2026 year.