What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-05-15 · 127 added, 103 removed, 107 unchanged (68% of the section changed)

7 unchanged sentences

The Company markets its services using the trade names General Employment Enterprises, Omni One, Ashley Ellis, Agile Resources, Scribe Solutions Inc., Access Data Consulting Corporation, Paladin Consulting Inc., SNI Companies, Accounting Now, Staffing Now®, SNI Banking, SNI Certes®, SNI Energy®, SNI Financial®, SNI Technology®, Triad Personnel Services and Triad Staffing.

As of March 31, 2023, we operated from locations in eleven (11) states, including twenty-six (26) branch offices in downtown or suburban areas of major U.S.

As of June 30, 2023, we operated from locations in eleven (11) states, including twenty-six (26) branch offices in downtown or suburban areas of major U.S.

cities and four (4) additional U.S.

15 unchanged sentences

Results of Operations

Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022

Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

Summary and Outlook

The quarter ended June 30, 2023, was our eighth consecutive quarter of profitability and free cash generation since completion of significant deleveraging initiatives and a follow-on offering during the quarter ended June 30, 2021.

We believe our top line performance was generally in line with our industry peers and included quarter-over-quarter growth in two of the Company’s largest professional specialties, IT and finance, accounting and office (“FAO”) contract services.

We are cautiously optimistic about future growth, and especially in our largest professional services businesses, led by IT, while taking into account continuing uncertainties and unknowns about the economy and labor environments.

The quarter ended June 30, 2023 also marked our twelfth consecutive quarter of improvement in results for purposes of evaluation of our deferred income tax valuation allowance, which had been set at 100% of our net deferred tax assets.

As a result, we recognized a deferred tax benefit of $6,752 during the quarter, which accounted for approximately $0.06 of this quarter’s earnings per share.

The reversal of this allowance is another significant milestone and indication of our progress.

We implemented a $20 million share repurchase program providing a means to return excess capital to our shareholders from our growing cash balances.

As of June 30, 2023, we had repurchased 870 shares.

As of August 11, 2023, the Company has repurchased 1,454 shares (accounting for approximately 1.3% of our issued and outstanding common shares immediately prior to the program).

The Company has conducted repurchases consistently since the program’s implementation and intends to continue to take advantage of the present attractive market prices for its common shares.

Consolidated net revenues are comprised of the following:

Ended March 31,

Ended June 30,

Professional contract services

3 unchanged sentences

Consolidated net revenues

Contract staffing services contributed $33,976, or approximately 87%, of consolidated revenues and direct hire placement services contributed $4,883, or approximately 13%, of consolidated revenues for the three-month period ended March 31, 2023.

This compares to contract staffing services revenues of $33,745, or approximately 85%, of consolidated revenues and direct hire placement revenues of $5,884, or approximately 15%, of consolidated revenues for the three-month period ended March 31, 2022.

The overall increase in contract staffing services revenues was $231, or 1%, for the three-month period ended March 31, 2023 compared to the three-month period ended March 31, 2022, led by professional contract services revenue, which increased $742.

Excluding the effects of certain discreet (non-recurring) projects for professional staffing support provided to former COVID-19 response vaccination and testing facilities, which generated $835 in revenue in the three-month period ended March 31, 2022, professional contract services revenues would have increased $1,577, or 5%, during the three-month period ended March 31, 2023 compared to the three-month period ended March 31, 2022.

Contract staffing services contributed $32,980, or approximately 86%, of consolidated revenues and direct hire placement services contributed $5,191, or approximately 14%, of consolidated revenues for the three-month period ended June 30, 2023.

This compares to contract staffing services revenues of $33,087, or approximately 80%, of consolidated revenues and direct hire placement revenues of $8,026, or approximately 20%, of consolidated revenues for the three-month period ended June 30, 2022.

Despite economic headwinds, including persistent inflation and threats of recession, consolidated contract staffing services revenues for the three-month period ended June 30, 2023 were near level, down $107, or less than 1%, when compared to the three-month period ended June 30, 2022.

Professional contract services revenue grew by $830, or 3%, led by our largest specialties, information technology and FAO and including pricing improvements implemented to mitigate rising costs related to inflation.

Industrial staffing services for the quarter decreased by $937, or 23%, mainly due to a decrease in orders from clients.

The industrial staffing markets in Ohio continue to be affected by workforce volatility following COVID-19, resulting in more competition for orders and temporary labor to fill orders.

Direct hire placement revenue for the three-month period ended March 31, 2023 decreased by $1,001, or approximately 17% as compared to the three-month period ended March 31, 2022.

(Amounts in thousands except per share data, unless otherwise stated)

Direct hire placement revenue for the three-month period ended June 30, 2023 decreased by $2,835, or approximately 35%, as compared to the three-month period ended June 30, 2022.

Direct hire opportunities tend to be highly cyclical and demand dependent.

Demand for the Company’s direct hire services was lower during the three-month period ended March 31, 2023, following record high cyclical direct hire production in fiscal 2022.

It is noteworthy that the three-month period ended March 31, 2022 was one of our highest quarters ever in terms of direct hire revenues.

Management believes that the Company’s direct hire performance during the three-month period ended March 31, 2023 was on par with larger employment and industry trends.

Demand for the Company’s direct hire services in fiscal 2022 was extraordinarily high driven by post-COVID employment recovery trends, and peaked in the prior June 30, 2022 comparable quarter resulting in the highest ever direct hire revenues for the Company in a single quarter.

Management believes that the Company’s direct hire performance during the three-month period ended June 30, 2023 was on par with larger employment and industry trends.

Cost of Contract Services

Cost of contract services includes wages and related payroll taxes and employee benefits of the Company's contract services employees, and certain other contract employee-related costs, while working on contract assignments.

Cost of contract services for the three-month period ended March 31, 2023 totaled $25,643, as compared to $25,115 for the three-month period ended March 31, 2022.

The $528 overall increase in cost of contract services is proportionally greater than the increase in revenues due mainly to inflationary effects on contractor pay and related costs of services.

(Amounts in thousands except per share data, unless otherwise stated)

Cost of contract services for the three-month period ended June 30, 2023, totaled $24,518, as compared to $24,612 for the three-month period ended June 30, 2022.

The $94 overall decrease in cost of contract services was generally in line with the decrease in total contract revenues.

Gross profit percentage by service:

Ended March 31,

Ended June 30,

Professional contract services

4 unchanged sentences

Includes gross profit from direct hire placements, for which all associated costs are recorded as selling, general and administrative expenses.

The Company’s combined gross profit margin, including direct hire placement services (recorded at 100% gross margin) for the three-month periods ended March 31, 2023 and 2022 were approximately 34.0% and 36.6%, respectively.

In the professional contract services segment, the gross margin (excluding direct hire placement services) was approximately 25.4% for three-month period ended March 31, 2023 compared to approximately 26.9% for the three-month period ended March 31, 2022.

The Company’s combined gross profit margin, including direct hire placement services (recorded at 100% gross margin) for the three-month periods ended June 30, 2023 and 2022 were approximately 35.8% and 40.1%, respectively.

In the professional contract services segment, the gross margin (excluding direct hire placement services) was approximately 26.5% for three-month period ended June 30, 2023, compared to approximately 26.9% for the three-month period ended June 30, 2022.

This decrease is due in part to increases in contractor pay associated with the recent rise in inflation resulting in some margin compression.

The Company has stepped-up counter-inflationary measures, including seeking increases in bill rates and spreads, where possible, to address margin compression.

The Company’s industrial contract services gross margin for the three-month period ended March 31, 2023 was approximately 16.5% versus approximately 14.7% for the three-month period ended March 31, 2022.

Gross profit for the Company’s Industrial Segment includes annual premium refunds from the Ohio Bureau of Workers Compensation insurance programs totaling $2 and $19 for the three-month periods ended March 31, 2023 and 2022, respectively.

The Industrial Services gross margin excluding the effect of these refunds and distributions were approximately 16.4% and 14.2% for the three-month periods ended March 31, 2023 and 2022, respectively.

The increase, excluding the effects of the workers compensation premium refunds and distributions, is mainly attributable to price increases enacted to offset increases in contractor payroll, leading to higher spreads in the Industrial Segment.

The Company has stepped-up counter-inflationary measures, as seen in the current quarter results, including seeking increases in bill rates and spreads, where possible, to address margin compression.

The Company’s industrial contract services gross margin for the three-month period ended June 30, 2023, was approximately 17.7% versus approximately 16.6% for the three-month period ended June 30, 2022.

Gross profit for the Company’s industrial contract services revenues include annual premium refunds from the Ohio Bureau of Workers Compensation insurance programs totaling $17 and $46 for the three-month periods ended June 30, 2023 and 2022, respectively.

The industrial contract services gross margins excluding the effect of these refunds and distributions were approximately 17.2% and 15.5% for the three-month periods ended June 30, 2023 and 2022, respectively.

The quarter-over-quarter increase, excluding the effects of the workers compensation premium refunds and distributions, is mainly attributable to price increases enacted to offset increases in contractor payroll, leading to higher spreads in the Industrial Segment.

(Amounts in thousands except per share data, unless otherwise stated)

Selling, General and Administrative Expenses

5 unchanged sentences

Other selling, general and administrative expenses, which includes travel, bad debt expense, fees for outside professional services and other corporate-level expenses such as business insurance and taxes.

(Amounts in thousands except per share data, unless otherwise stated)

The Company’s SG&A for the three-month period ended March 31, 2023 decreased by $523 as compared to the three-month period ended March 31, 2022.

SG&A for the three-month period ended March 31, 2023, as a percentage of revenues, were approximately 30% compared to approximately 31% for the three-month period ended March 31, 2022.

SG&A for the three-month period ended March 31, 2022 included the settlement of a legal matter totaling $975.

The small net increase in SG&A relative to revenue excluding the impact of this non-recurring item is largely a result of the effects of inflation on compensation and other operating costs.

In February and March 2023, the Company implemented certain cost reductions with estimated annual savings of approximately $4.0 million.

The Company’s SG&A for the three-month period ended June 30, 2023 decreased by $1,107, or 9%, as compared to the three-month period ended June 30, 2022.

SG&A as a percentage of revenues was 30.8% and 31.3% for the three-month periods ended June 30, 2023 and 2022, respectively.

The decrease in SG&A and improvement in the SG&A ratio is mainly due to cost reductions the Company implemented in February and March 2023.

The Company monitors operating costs including the impacts of inflation with a view towards identifying and taking advantage of potential cost reductions on a routine basis.

SG&A also includes certain non-cash costs and expenses incurred related to acquisition, integration, restructuring and other non-recurring activities, such as certain corporate legal and general expenses associated with capital markets activities, that either are not directly associated with core business operations or have been eliminated on a going forward basis.

These costs were estimated to be $65 and $1,005 for the three-month periods ended March 31, 2023 and 2022, respectively, and include mainly expenses associated with former closed and consolidated locations, and personnel costs associated with eliminated positions.

The legal settlement described above contributed $975 to these costs for the three-month period ended March 31, 2022.

Depreciation Expense

Depreciation expense was $98 and $94 for the three-month periods ended March 31, 2023, and 2022, respectively.

The increase in depreciation expense is due to recent net additions to fixed assets.

Amortization Expense

Amortization expense was $719 and $1,015 for the three-month periods ended March 31, 2023 and 2022, respectively.

The decrease is due to intangible assets related to certain non-compete agreements and trade names becoming fully amortized.

These costs were estimated to be $21 and $340 for the three-month periods ended June 30, 2023 and 2022, respectively, and include mainly expenses associated with former closed and consolidated locations, and personnel costs associated with eliminated positions.

Depreciation and Amortization Expense

Depreciation expense and amortization expense were level at $96 and $720 each, respectively, during both the three-month periods ended June 30, 2023 and 2022.

Income from Operations

Income from operations was $694 and $1,177 for the three-month periods ended March 31, 2023 and 2022, respectively.

This decrease of $483 is mainly attributable to the decrease in direct hire placement revenues as discussed above.

Income from operations was $1,084 and $2,825 for the three-month periods ended June 30, 2023 and 2022, respectively.

This decrease of $1,741 is mainly attributable to the decrease in direct hire placement revenues, offset in part by the cost reductions in SG&A as discussed above.

Interest Expense

Interest expense was $73 for the three-month period ended March 31, 2023, which decreased by $25 compared to the three-month period ended March 31, 2022.

Interest expense was $119 for the three-month period ended June 30, 2023, which increased by $23 as compared to the three-month period ended June 30, 2022, and included certain annual loan related fees and costs.

(Amounts in thousands except per share data, unless otherwise stated)

Interest Income

The Company began holding excess cash in a money market account in August 2022 on which interest has since been earned on a monthly basis.

Interest income earned from this account was $95 for the three-month period ended March 31, 2023.

The Company began holding excess cash in interest bearing accounts in August 2022, on which interest income earned was $159 for the three-month period ended June 30, 2023.

Provision for Income Taxes

The Company recognized income tax expense (benefit) of $58 and $(8) for the three-month periods ended March 31, 2023 and 2022, respectively.

Our effective tax rates for the three-month periods ended March 31, 2023 and 2022 are lower than the statutory rate primarily due to the effect of the change in valuation allowance on the net DTA position.

The Company’s net income was $658 and $1,087 for the three-month periods ended March 31, 2023 and 2022, respectively.

The decrease of $429 is consistent with the decrease in gross profit and gross margin for the three months ended March 31, 2023, as explained in the preceding applicable portions of this Management’s Discussion and Analysis (“MD&A”).

The Company recognized income tax (benefit) expense of $(6,752) and $96 for the three-month periods ended June 30, 2023 and 2022, respectively.

Our effective tax rates for the three-month periods ended June 30, 2023, and 2022 are lower than the statutory rate primarily due to the effect of the change in valuation allowance on the net deferred tax asset (“DTA”) position.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.

As of June 30, 2023, in part due to the fact that in the current year we achieved three years of cumulative pretax income in the U.S.

federal tax jurisdiction, management determined that there is sufficient positive evidence to conclude that it is more likely than not that the deferred taxes are realizable.

As a result, the Company released $6,938 of the valuation allowance accordingly during the three months ended June 30, 2023.

The Company’s net income was $7,876 and $2,633 for the three-month periods ended June 30, 2023 and 2022, respectively.

The increase of $5,243 is mainly attributable to the deferred tax benefit of $6,752 outlined above.

Excluding this activity, the decrease of $1,509 is consistent with the decrease in direct hire placement revenues, as offset by decreases in SG&A, as explained in the preceding applicable portions of this Management’s Discussion and Analysis (“MD&A”).

(Amounts in thousands except per share data, unless otherwise stated)

Six Months Ended March 31, 2023 Compared to the Six Months Ended March 31, 2022

Nine Months Ended June 30, 2023 Compared to the Nine Months Ended June 30, 2022

Summary and Outlook

The nine-month period ended June 30, 2023, collectively demonstrates the continuation of profitability and free cash generation since completion of significant deleveraging initiatives and a follow-on offering during the quarter ended June 30, 2021.

The nine-month period ended June 30, 2023 included our twelfth consecutive quarter of improvement in results for purposes of evaluation of our deferred income tax valuation allowance, which had been set at 100% of our net deferred tax assets.

As a result, we recognized a deferred tax benefit of $6,621, which accounted for approximately $0.06 of this nine-month period’s earnings per share.

The reversal of this allowance is another significant milestone and indication of our progress.

We implemented a $20 million share repurchase program providing a means to return excess capital to our shareholders from our growing cash balances.

As of June 30, 2023, we had repurchased 870 shares.

As of August 11, 2023, the Company has repurchased 1,454 shares [accounting for approximately 1.3% of our issued and outstanding common shares immediately prior to the program].

The Company has conducted repurchases consistently since the program’s implementation and intends to continue to take advantage of the present attractive market prices for its common shares.

Consolidated net revenues are comprised of the following:

Ended March 31,

Ended June 30,

Professional contract services

3 unchanged sentences

Consolidated net revenues

Contract staffing services contributed $69,377, or approximately 87%, of consolidated revenues and direct hire placement services contributed $10,630, or approximately 13%, for the six-month period ended March 31, 2023.

This compares to contract staffing services revenues of $70,429, or approximately 85%, of consolidated revenues and direct hire placement revenues of $12,047, or approximately 15%, of consolidated revenues for the six-month period ended March 31, 2022.

The overall decrease in contract staffing services revenues of $1,052, or 1%, for the six-month period ended March 31, 2023 compared to the six-month period ended March 31, 2022 was primarily attributable to completion of certain discreet (non-recurring) projects as the six-month period ended March 31, 2022 included revenue for professional staffing support provided to former COVID-19 response vaccination and testing facilities.

These discreet projects generated $3,159 in revenue during the six-month period ended March 31, 2022.

Excluding the effects of these discreet projects, professional contract services revenues would have increased $3,087, or 5%, during the six-month period ended March 31, 2023 compared to the six-month period ended March 31, 2022.

Industrial staffing services for the quarter decreased by $980, or 13%, mainly due to a decrease in orders from clients.

The industrial staffing markets continue to stabilize after the effects of COVID-19;

however, competition for orders and temporary labor to fill orders also has increased.

Direct hire placement revenue for the six-month period ended March 31, 2023 decreased by $1,417, or approximately 12%, from the six-month period ended March 31, 2022.

Contract staffing services contributed $102,357, or approximately 87%, of consolidated revenues and direct hire placement services contributed $15,821, or approximately 13%, for the nine-month period ended June 30, 2023.

This compares to contract staffing services revenues of $103,516, or approximately 84%, of consolidated revenues and direct hire placement revenues of $20,073, or approximately 16%, of consolidated revenues for the nine-month period ended June 30, 2022.

Despite economic headwinds, including persistent inflation and threats of recession, consolidated contract staffing services revenues for the nine-month period ended June 30, 2023 were down only $1,159, or 1%, when compared to the nine-month period ended June 30, 2022.

Professional contract services revenue grew by $758, or 1%, led by our largest specialties, information technology and FAO, and including pricing improvements implemented to mitigate rising costs related to inflation.

Industrial contract staffing services for the first nine months decreased by $1,917, or 16%, mainly due to a decrease in orders from clients.

The industrial staffing markets in Ohio continue to be affected by workforce volatility following COVID-19, resulting in more competition for orders and temporary labor to fill orders.

Direct hire placement revenue for the nine-month period ended June 30, 2023 decreased by $4,252, or 21%, as compared to the nine-month period ended June 30, 2022.

Direct hire opportunities tend to be highly cyclical and demand dependent.

Demand for the Company’s direct hire services was lower during the six-month period ended March 31, 2023 following record high cyclical direct hire production in fiscal 2022, including the six-month period ended March 31, 2022.

Demand for the Company’s direct hire services in fiscal 2022 was extraordinarily high driven by post-COVID employment recovery trends, and peaked in the prior June 30, 2022 comparable periods resulting in the highest ever direct hire revenues for the Company during those periods.

Management believes that the Company’s direct hire performance during the nine-month period ended June 30, 2023 was on par with larger employment and industry trends.

(Amounts in thousands except per share data, unless otherwise stated)

Cost of Contract Services

Cost of contract services for the six-month period ended March 31, 2023 totaled $52,400, which was slightly higher as compared to $52,380 for the six-month period ended March 31, 2022, while total contract services revenues for the six-month period ended March 31, 2023 was down $1,005 compared with the six-month period ended March 31, 2022.

On the basis of relativity to revenue, the increase in cost of contract services was approximately $800, or 1.5%, which is attributable to increases in contractor pay as a result of recent wage inflation.

(Amounts in thousands except per share data, unless otherwise stated)

Cost of contract services for the nine-month period ended June 30, 2023, totaled $76,918, as compared to $76,992 for the nine-month period ended June 30, 2022.

The $74 decrease is generally in line with, but slightly less proportional in comparison to the decrease in contract revenues, due to increases in contractor pay as a result of recent wage inflation.

Gross profit percentage by service:

Ended March 31,

Ended June 30,

Professional contract services

4 unchanged sentences

Includes gross profit from direct hire placements, for which all associated costs are recorded as selling, general and administrative expenses.

The Company’s combined gross profit margins, including direct hire placement services (recorded at 100% gross margin) for the six-month periods ended March 31, 2023 and 2022 were approximately 34.5% and 36.5%, respectively.

In the professional contract services segment, the gross margin (excluding direct hire placement services) was approximately 25.4% for the six-month period ended March 31, 2023 compared to approximately 27.0% for the six-month period ended March 31, 2022.

The Company’s combined gross profit margins, including direct hire placement services (recorded at 100% gross margin) for the nine-month periods ended June 30, 2023 and 2022 were approximately 34.9% and 37.7%, respectively.

In the professional contract services segment, the gross margin (excluding direct hire placement services) was approximately 25.8% for the nine-month period ended June 30, 2023 compared to approximately 26.9% for the nine-month period ended June 30, 2022.

This decrease is due in part to increases in contractor pay associated with the recent rise in inflation resulting in some margin compression.

The Company has stepped-up counter-inflationary measures, including seeking increases in bill rates and spreads, where possible, to address margin compression.

The Company’s industrial contract services gross margin for the six-month period ended March 31, 2023 was approximately 15.9% versus approximately 15.0% for the six-month period ended March 31, 2022.

Gross profit for the Company’s Industrial Segment includes annual premium refunds from the Ohio Bureau of Workers Compensation insurance programs totaling $2 and $37 for the six-month periods ended March 31, 2023 and 2022, respectively.

The Industrial Services gross margin excluding the effect of these refunds and distributions were approximately 15.9% and 14.5% for the six-month periods ended March 31, 2023 and 2022, respectively.

The Company has stepped-up counter-inflationary measures, as seen in the current quarter results, including seeking increases in bill rates and spreads, where possible, to address margin compression.

The Company’s industrial contract services gross margin for the nine-month period ended June 30, 2023, was approximately 16.5% versus approximately 15.5% for the nine-month period ended June 30, 2022.

Gross profit for the Company’s industrial contract services revenues include annual premium refunds from the Ohio Bureau of Workers Compensation insurance programs totaling $19 and $83 for the nine-month periods ended June 30, 2023 and 2022, respectively.

The industrial contract services gross margins excluding the effect of these refunds and distributions were approximately 16.3% and 14.8% for the nine-month periods ended June 30, 2023 and 2022, respectively.

(Amounts in thousands except per share data, unless otherwise stated)

Selling, General and Administrative Expenses

5 unchanged sentences

(Amounts in thousands except per share data, unless otherwise stated)

The Company’s SG&A for the six-month period ended March 31, 2023 decreased by $74 as compared to the six-month period ended March 31, 2022.

SG&A for the six-month period ended March 31, 2023, as a percentage of revenues, were approximately 31% compared to approximately 30% for the six-month period ended March 31, 2022.

SG&A for the three-month period ended March 31, 2022 included expenses for the settlement of a legal matter and a severance agreement totaling $975 and $510, respectively.

The Company’s SG&A for the nine-month period ended June 30, 2023 decreased by $1,181, or 3%, as compared to the nine-month period ended June 30, 2022.

SG&A, as a percentage of revenues, was approximately 30.7% and 30.3% for the nine-month periods ended June 30, 2023 and 2022, respectively.

SG&A for the nine-month period ended June 30, 2022, included expenses for the settlement of a legal matter and severance agreements totaling $975 and $838, respectively.

The net increase in SG&A relative to revenue, excluding the impact of these non-recurring items, is largely a result of the effects of inflation on compensation and other operating costs.

In February and March 2023, the Company implemented certain cost reductions with estimated annual savings of approximately $4.0 million.

In February and March 2023, the Company implemented certain cost reductions with estimated annual savings of approximately $4.0 million, the impact of which began to take effect in the most recent quarter’s results through June 30, 2023.

The Company monitors operating costs including the impacts of inflation with a view towards identifying and taking advantage of potential cost reductions on a routine basis.

SG&A includes certain non-cash costs and expenses incurred related to acquisition, integration and restructuring and other non-recurring activities, such as certain corporate legal and general expenses associated with capital markets activities that either are not directly associated with core business operations or have been eliminated on a going forward basis.

These costs were estimated to be $110 and $1,531 for the six-month periods ended March 31, 2023 and 2022, respectively, and include mainly expenses associated with former closed and consolidated locations, and personnel costs associated with eliminated positions.

The six-month period ended March 31, 2022 included expenses for a legal settlement and severance agreement totaling $975 and $510, respectively.

Depreciation Expense

Depreciation expense was $199 and $180 for the six-month periods ended March 31, 2023 and 2022, respectively.

These costs were estimated to be $130 and $1,871 for the nine-month periods ended June 30, 2023 and 2022, respectively, and include mainly expenses associated with former closed and consolidated locations, and personnel costs associated with eliminated positions.

Depreciation and Amortization Expense

Depreciation expense was $295 and $276 for the nine-month periods ended June 30, 2023 and 2022, respectively.

The increase in depreciation expense is due to recent net additions to fixed assets.

Amortization Expense

Amortization expense was $1,439 and $2,029 for the six-month periods ended March 31, 2023 and 2022, respectively.

Amortization expense was $2,159 and $2,749 for the nine-month periods ended June 30, 2023 and 2022, respectively.

The decrease is due to intangible assets related to certain non-compete agreements and trade names becoming fully amortized.

Income from Operations

Income from operations was $1,456 and $1,150 for the six-month periods ended March 31, 2023 and 2022, respectively.

The increase is mainly due to the six-month period ended March 31, 2022 including expenses for a legal settlement and severance agreement totaling $975 and $510, respectively.

Excluding these items, the net decrease of $1,179 is consistent with the decrease in revenues as discussed above.

Income from operations was $2,540 and $3,975 for the nine-month periods ended June 30, 2023 and 2022, respectively.

This decrease of $1,435 is not proportional to the decrease in period over period revenues as the nine-month period ended June 30, 2022 included expenses for a legal settlement and severance agreements totaling $975 and $838, respectively.

Excluding these items, the net decrease of $3,248 is consistent with the decrease in revenues, mainly in direct hire placements, as discussed above.

(Amounts in thousands except per share data, unless otherwise stated)

Interest Expense

Interest expense was $146 for the six-month period ended March 31, 2023, which decreased by $59 compared to the six-month period ended March 31, 2022.

Interest expense was $265 for the nine-month period ended June 30, 2023, which decreased by $36 compared to the nine-month period ended June 30, 2022.

Interest Income

The Company began holding excess cash in a money market account in August 2022 on which interest has since been earned on a monthly basis.

Interest income earned from this account was $133 for the six-month period ended March 31, 2023.

The Company began holding excess cash in interest bearing accounts in August 2022 on which interest income earned was $292 for the nine-month period ended June 30, 2023.

Provision for Income Taxes

The Company recognized income tax expense (benefits) of $131 and $(37) for the six-month periods ended March 31, 2023 and 2022, respectively.

Our effective tax rates for the six-month periods ended March 31, 2023 and 2022 are lower than the statutory rate primarily due to the effect of the change in valuation allowance on the net DTA position.

The Company’s net income was $1,312 and $17,755 for the six-month periods ended March 31, 2023 and 2022, respectively.

The decrease in net income is mainly attributable to gains of $16,773 from extinguishment of the Company’s remaining PPP loans, offset by a $2,150 non-cash goodwill impairment charge during the six months ended March 31, 2022.

The remaining net decrease of $1,820 is consistent with the decrease in gross profit and gross margin for the six months ended March 31, 2023, as explained in the preceding applicable portions of this MD&A.

The Company recognized income tax (benefits) expense of $(6,621) and $59 for the nine-month periods ended June 30, 2023 and 2022, respectively.

Our effective tax rates for the nine-month periods ended June 30, 2023 and 2022 are lower than the statutory rate primarily due to the effect of the change in valuation allowance on the net DTA position.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.

As of June 30, 2023, in part due to the fact that in the current year we achieved three years of cumulative pretax income in the U.S.

federal tax jurisdiction, management determined that there is sufficient positive evidence to conclude that it is more likely than not that the deferred taxes are realizable.

As a result, the Company released $6,938 of the valuation allowance accordingly during the nine months ended June 30, 2023.

The Company’s net income was $9,188 and $20,388 for the nine-month periods ended June 30, 2023 and 2022, respectively.

Additionally, the deferred tax benefit of $6,621 during the nine months ended June 30, 2023 partially offset the decrease in comparable periods.

Excluding these items, the remaining net decrease of $3,198 is consistent with the decrease in direct hire placement revenues, as offset by decreases in SG&A, as explained in the preceding applicable portions of this MD&A.

(Amounts in thousands except per share data, unless otherwise stated)

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The following table sets forth certain consolidated statements of cash flows data:

Ended March 31,

Ended June 30,

Cash flows provided by operating activities

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Cash flows used in financing activities

As of March 31, 2023, the Company had $20,099 of cash, which was an increase of $1,251 from $18,848 as of September 30, 2022.

As of March 31, 2023, the Company had working capital of $29,928 compared to $26,643 of working capital as of September 30, 2022.

The increase in working capital is mainly attributable to the final installment of deferred payroll taxes under the CARES Act being paid and annual incentive compensation payments during the six months ended March 31, 2023, which were reflected in current liabilities in the aggregate amount of $3,027 as of September 30, 2022.

These payments also account for corresponding reductions in cash flows provided by operating activities as of March 31, 2023.

The primary uses of cash for investing activities were for the acquisition of property and equipment in the six-month periods ended March 31, 2023 and 2022.

The cash flows used in financing activities were for payments made on finance leases during the six-month periods ended March 31, 2023 and 2022.

As of June 30, 2023, the Company had $20,726 of cash, which was an increase of $1,878 from $18,848 as of September 30, 2022.

As of June 30, 2023, the Company had working capital of $31,294 compared to $26,643 of working capital as of September 30, 2022.

The increase in working capital is mainly attributable to the final installment of deferred payroll taxes under the CARES Act being paid and annual incentive compensation payments during the nine months ended June 30, 2023, which were reflected in current liabilities in the aggregate amount of $3,027 as of September 30, 2022.

These payments also account for corresponding reductions in cash flows provided by operating activities as of June 30, 2023.

The primary uses of cash for investing activities were for the acquisition of property and equipment during the nine-month periods ended June 30, 2023 and 2022.

The cash flows used in financing activities were for purchases of treasury stock during the nine-month period ended June 30, 2023, and payments made on finance leases during the nine-month periods ended June 30, 2023 and 2022.

All the Company’s office facilities are leased.

Minimum lease payments under all the Company’s lease agreements for the twelve-month period commencing after the close of business on March 31, 2023, are approximately $1,682.

There are no minimum debt service principal payments due during the twelve-month period commencing after the close of business on March 31, 2023.

The Company had approximately $13,347 in availability for borrowings under its CIT Facility as of March 31, 2023.

There were no outstanding borrowings on the CIT Facility as of March 31, 2023, or September 30, 2022, except for certain accrued carrying fees and costs, which are included in other current liabilities in the accompanying consolidated balance sheets.

On April 27, 2023, the Company’s Board of Directors approved a share repurchase program authorizing the Company to purchase up to an aggregate of $20,000 of the Company’s currently outstanding shares of common stock.

Minimum lease payments under all the Company’s lease agreements for the twelve-month period commencing after the close of business on June 30, 2023, are approximately $1,746.

There are no minimum debt service principal payments due during the twelve-month period commencing after the close of business on June 30, 2023.

The Company had approximately $12,434 in availability for borrowings under its CIT Facility as of June 30, 2023.

There were no outstanding borrowings on the CIT Facility as of June 30, 2023, or September 30, 2022, except for certain accrued carrying fees and costs, which are included in other current liabilities in the accompanying condensed consolidated balance sheets.

On April 27, 2023, the Company’s Board of Directors approved a share repurchase program authorizing the Company to purchase up to an aggregate of $20 million of the Company’s currently outstanding shares of common stock.

The share repurchase program will continue through December 31, 2023, may be suspended or discontinued at any time and does not obligate the Company to repurchase any number of shares of common stock.

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Subject to applicable rules and regulations, the shares of common stock may be purchased from time to time in the open market transactions and in amounts as the Company deems appropriate, based on factors such as market conditions, legal requirements, and other business considerations.

During the three-months ended June 30, 2023, the Company repurchased 870 shares of its common stock at a total cost of $471.

As of August 11, 2023, the Company has repurchased 1,454 shares (accounting for approximately 1.3% of our issued and outstanding common shares immediately prior to the program).

The Company has conducted repurchases consistently since the program’s implementation and intends to continue to take advantage of the present attractive market prices for its common shares.

Management believes that the Company can generate adequate liquidity to meet its obligations for the foreseeable future and at least for the next twelve months.

Off-Balance Sheet Arrangements

As of March 31, 2023, there were no transactions, agreements or other contractual arrangements to which an unconsolidated entity was a party, under which the Company (a) had any direct or contingent obligation under a guarantee contract, derivative instrument or variable interest in the unconsolidated entity, or (b) had a retained or contingent interest in assets transferred to the unconsolidated entity.

As of June 30, 2023, there were no transactions, agreements or other contractual arrangements to which an unconsolidated entity was a party, under which the Company (a) had any direct or contingent obligation under a guarantee contract, derivative instrument or variable interest in the unconsolidated entity, or (b) had a retained or contingent interest in assets transferred to the unconsolidated entity.

Quantitative and Qualitative Disclosures About Market Risk .

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis