Executive Summary / Key Takeaways

• GEE Group (JOB) operates in the cyclical staffing industry, specializing in professional (IT, Finance, Accounting, Engineering, Office, Medical) and formerly industrial segments, currently facing significant macroeconomic headwinds and reduced demand ("The Big Stay").
• Despite recent losses driven by lower revenue and non-cash charges (goodwill impairment, deferred tax valuation), the company maintains a strong balance sheet with substantial cash and an undrawn credit facility, providing crucial liquidity.
• Management is aggressively executing a multi-pronged strategy focused on significant SG&A cost reductions (targeting $3M annual savings), operational streamlining (system integration, leveraging AI and offshore recruiting), and accretive M&A (Hornet acquisition completed, robust pipeline) to restore profitability by late 2025 or early/mid-2026.
• While smaller in scale and facing competitive pressures from larger, more technologically advanced peers, JOB differentiates through niche expertise (e.g., healthcare scribes), a targeted mid-market client base, and an acquisition strategy aimed at faster regional expansion and service enhancement (like MSP/VMS capabilities).
• Key factors for investors to monitor include the timing and strength of a broader market recovery, the successful execution and integration of cost-saving and M&A initiatives, and the effectiveness of technology adoption (AI, offshore recruiting) in improving efficiency and competitive positioning.

Setting the Scene: A Specialist's Journey Through Staffing Cycles

GEE Group Inc. (JOB) operates within the dynamic and often cyclical U.S. staffing and human resources solutions industry. The company has carved out a niche primarily within professional staffing services, offering both temporary/contract placements and direct hire services across key verticals including Information Technology (IT), accounting, finance, office support, engineering, and medical. While historically also involved in industrial staffing, the company recently completed the divestiture of this segment in June 2025 to sharpen its focus on the higher-margin professional markets.

The company's modern trajectory was significantly shaped by the involvement of Chairman and CEO Derek Dewan starting around 2015. Described as "dying on the vine" prior to this period, GEE Group underwent a recapitalization and embarked on a strategic acquisition spree. Key deals, including Scribe Solutions (2015), Agile Resources (2015), Access Data Consulting (2015), Paladin Consulting (2016), and SNI Companies (2017), expanded its geographic footprint and deepened its vertical expertise, propelling revenue from approximately $40 million to highs of around $165 million. This period demonstrated the company's ability to leverage M&A for rapid growth and market penetration.

Following a period of restructuring and navigating the COVID-19 pandemic, GEE Group experienced a significant "post-COVID-19 bounce" in 2021 and 2022, culminating in a record year in fiscal 2022 with over $160 million in revenue and approximately $13 million in adjusted EBITDA, outpacing many peers in growth during that time.

However, since the latter half of 2023 and continuing into 2024 and 2025, the industry has faced a challenging downturn. Macroeconomic uncertainty, interest rate volatility, inflation, and a correction from prior "over hiring" have led to a widespread "cooling effect" on employment, characterized by layoffs, hiring freezes, and reduced demand for staffing services – a period management refers to as "The Big Stay." This environment has significantly impacted GEE Group's recent financial performance.

Leveraging Technology and Operational Innovation

While not built upon a single, proprietary core technology in the way a manufacturing company might be, GEE Group's strategy heavily relies on the effective adoption and integration of industry-leading technologies and operational models to enhance its competitive position and drive efficiency. The company utilizes applicant tracking systems (ATS) and enterprise resource planning (ERP) systems as foundational tools for its operations.

A key strategic focus is the ongoing migration and integration of remaining legacy front and back-office systems onto singular cloud-based platforms. This initiative, expected to be completed over the next 12 to 18 months, aims to achieve economies of scale and, crucially, provide the means to accelerate and integrate future accretive acquisitions more efficiently. Management anticipates that a unified system will allow for faster onboarding of acquired businesses, embedding their clients, core personnel, and contractors into the GEE Group system within weeks rather than months.

Furthermore, in response to the current competitive landscape and the need for cost efficiency and scalability, GEE Group is strategically leveraging Artificial Intelligence (AI) and exploring offshore recruiting models. AI is being integrated into operating business strategy, plans, and systems, with a focus on seeking, attracting, and placing AI talent, and refocusing organic growth efforts towards verticals where AI can be leveraged or that are less likely to be significantly disrupted. Specific applications include using AI agents for sales targeting and contact management, and exploring AI recruiting tools to automate processes, aiming to decrease costs and increase the speed of candidate deployment. Management believes AI presents significant opportunity to make recruiting not only more efficient but also higher quality, and to enhance sales processes.

The acquisition of Hornet Staffing in January 2025 brought with it an experienced offshore recruiting team. GEE Group plans to utilize this capability across all its staffing verticals, particularly for MSP (Managed Service Provider) and VMS (Vendor Management System) sourced business. This offshore model is expected to provide significant cost savings (potentially up to 70% in operational expenses, according to industry data cited by management) and faster hiring cycles (reducing timelines by up to 40% by tapping a global talent pool and enabling round-the-clock recruitment efforts). This gives GEE Group additional flexibility and scalability to adjust hiring volumes efficiently.

The "so what" for investors is that GEE Group is actively investing in and adopting technologies and operational models that are becoming increasingly standard in the staffing industry but are critical for maintaining competitiveness. By streamlining systems and leveraging AI and offshore resources, the company aims to lower operating costs, improve recruiter productivity, enhance speed-to-market for candidates, and better position itself to compete for high-volume MSP/VMS business, ultimately contributing to margin improvement and profitability restoration.

Competitive Landscape and Positioning

The U.S. staffing market is fragmented but dominated by several large players, with GEE Group holding an estimated 1-2% aggregate market share. Key publicly traded competitors include Robert Half International (RHI), Kelly Services (KELYA), and ManpowerGroup (MAN). These larger firms benefit from significant scale, established global brands, and often more extensive investments in advanced digital recruitment technologies.

Compared to these giants, GEE Group operates with a smaller scale, which can lead to higher operating costs as a percentage of revenue, particularly during downturns when fixed costs weigh more heavily. For instance, while GEE Group's professional contract gross margins (around 25%) are competitive and its overall combined gross margin (34.1% in Q2 2025) benefits from the high-margin direct hire business, larger peers like RHI often exhibit higher overall gross margins (e.g., 39% in FY 2024) due to their focus on premium professional services and greater operational efficiencies. Similarly, while GEE Group's revenue growth can be strong in favorable markets or through acquisitions, its profitability metrics like ROIC (estimated 8-10%) tend to lag the industry average (around 12%) and larger competitors (RHI 14%, MAN 10%).

GEE Group's competitive positioning relies on several factors:

• Niche Expertise: Specialization in areas like medical scribes (healthcare staffing) provides higher-margin opportunities that larger, more generalized firms may not pursue as aggressively.
• Mid-Market Focus: Targeting small and medium-sized enterprises (SMEs) allows GEE Group to potentially capture higher spreads compared to the often price-sensitive, high-volume VMS/MSP business dominated by larger players, although the Hornet acquisition signals a strategic move to increase VMS/MSP penetration.
• Acquisition Strategy: Historically, M&A has been a faster route to gain market share, enter new geographies, and acquire specialized talent and client bases compared to purely organic growth. This strategy allows GEE Group to be more nimble in entering specific regional or vertical markets.
• Client Retention: Management highlights excellent client retention, particularly among larger clients, which is a critical foundation for stability and future growth when market conditions improve.

However, GEE Group faces vulnerabilities. Its smaller scale means it has less leverage with clients and suppliers compared to MAN or KELYA. Its technological infrastructure, while being upgraded, may still lag the cutting-edge digital platforms of RHI, potentially impacting recruitment speed and efficiency. The reliance on specific verticals like IT and Finance/Accounting also exposes it to concentrated risk if those sectors experience significant downturns, as seen recently. Furthermore, indirect competitors like online job platforms and emerging AI recruitment tools offer cheaper alternatives that could commoditize parts of the staffing market, potentially eroding demand for traditional services and pressuring margins. GEE Group's adoption of AI and offshore recruiting is a direct strategic response to these disruptive forces.

Recent Performance and Financial Health

GEE Group's financial results for the fiscal second quarter and first half ended March 31, 2025, reflect the challenging operating environment.

For the three months ended March 31, 2025:

• Consolidated Net Revenues were $24.5 million, down 4% from $25.6 million in the prior year quarter.
• Professional contract services revenue decreased 7% to $21.5 million, while direct hire placement revenue increased 22% to $3.0 million, showing some resilience in that segment.
• Gross Profit was $8.4 million, relatively flat compared to $8.4 million in the prior year quarter.
• Combined Gross Margin improved to 34.1% from 32.8%, primarily due to the higher mix of 100% margin direct hire revenue. Professional contract gross margin slightly decreased to 24.9% from 25.7%, attributed to business mix changes and price concessions.
• Selling, General and Administrative (SGA) expenses decreased 3% to $9.3 million. However, as a percentage of revenue, SGA increased to 38.0% from 37.3%, reflecting lower revenue against a relatively fixed cost base.
• The company reported a Loss from Operations of $23.2 million, significantly wider than the $1.9 million loss in the prior year quarter. This was primarily driven by a $22.0 million non-cash goodwill impairment charge related to the Professional Services reporting unit.
• Consolidated Net Loss was $33.1 million, or $0.30 per diluted share, compared to a net loss of $1.0 million, or $0.01 per diluted share, in the prior year quarter. The increased loss was mainly due to the goodwill impairment and a $9.9 million non-cash charge for establishing a full valuation allowance against net deferred tax assets.

For the six months ended March 31, 2025:

• Consolidated Net Revenues were $48.5 million, down 10% from $53.7 million in the prior year period.
• Professional contract services revenue decreased 11% to $43.0 million, while direct hire placement revenue was relatively flat at $5.5 million.
• Gross Profit was $16.3 million, down from $17.7 million.
• Combined Gross Margin improved to 33.6% from 33.0%, again driven by the direct hire mix. Professional contract gross margin slightly decreased to 25.1% from 25.3%.
• SGA expenses decreased 10% to $17.7 million, remaining relatively flat as a percentage of revenue (36.6% vs 36.7%).
• Loss from Operations was $24.0 million, compared to a $3.6 million loss in the prior year period, primarily due to the $22.0 million goodwill impairment.
• Consolidated Net Loss was $33.8 million, or $0.31 per diluted share, compared to a $2.6 million loss, or $0.02 per diluted share, in the prior year period, impacted by the impairment and deferred tax valuation allowance.

It is critical for investors to understand that the substantial net losses reported in Q2 2025 were largely non-cash charges ($22.0M goodwill impairment, $9.9M deferred tax valuation allowance). These accounting adjustments reflect the impact of the prolonged downturn on the carrying value of assets but do not affect the company's cash position, tangible assets, net working capital, or net tangible book value.

Despite the operational losses, GEE Group maintains a strong liquidity position. As of March 31, 2025, the company held $18.7 million in cash and had $7.4 million available under its undrawn asset-based senior secured revolving credit facility. Net working capital stood at a robust $24.1 million, and the company had no outstanding debt.

This financial strength provides GEE Group with flexibility to weather the current downturn, fund strategic initiatives, and pursue M&A opportunities.

Strategic Execution and Outlook

GEE Group is not passively waiting for a market recovery. Management is actively pursuing a multi-pronged strategy to mitigate losses, restore profitability, and position the company for future growth.

A key focus is aggressive cost management. The company has implemented significant SG&A expense reductions, targeting an estimated $3 million in annual savings. These cuts have focused on areas like personnel, occupancy costs, job boards, and applicant tracking systems, aiming to align the cost structure with current revenue levels. Management is prepared to make further adjustments if needed, emphasizing a constant evaluation of expenditures while balancing the need to maintain service quality and preparedness for an upturn.

M&A remains a central pillar of the growth strategy. Management views the current environment as presenting opportunities to acquire businesses at reduced multiples and favorable valuations. The acquisition of Hornet Staffing in January 2025 for $1.5 million (including $1.1M cash and $0.4M in promissory notes) is the first step in this renewed M&A push. Hornet is expected to be accretive to earnings and strategically enhances GEE Group's capabilities in working with MSPs and VMSs, a growing segment of the market for large clients, and adds valuable offshore recruiting resources. Management describes the M&A pipeline as "robust and full," with evaluation and diligence underway on several targets. They explicitly expect to complete additional accretive M&A transactions within this fiscal year. Proceeds from the recently completed sale of the Industrial segment will be reinvested in the growth strategy, including M&A.

Organic growth initiatives are also underway. The company is focused on aggressively pursuing new client business, expanding relationships with existing customers, and leveraging cross-selling opportunities across its professional verticals. Revamped incentive compensation plans for sales and recruiting personnel are designed to motivate higher production. The strategic integration of AI and the utilization of the offshore recruiting team are expected to enhance the efficiency and reach of these organic efforts, particularly in competing for VMS/MSP business.

Management's outlook, while cautious due to ongoing market uncertainty, is optimistic about returning to profitability. The stated goal is to achieve profitability in the latter part of 2025 or early/mid-2026. This expectation is based on the anticipated benefits from the implemented cost reductions, the accretion from recent and planned M&A, and the eventual stabilization and improvement in the broader labor market. Management believes the company has likely "hit the bottom" of the downturn and is seeing early "green shoots" in job order trends and sequential revenue improvements (e.g., April/May 2024 trends cited in prior calls), although they acknowledge these signs are not yet definitively sustainable.

Risks and Challenges

Despite the strategic initiatives, GEE Group faces significant risks that could impact its ability to achieve its objectives and affect the investment thesis:

• Prolonged Economic Downturn: The primary risk is that the current difficult macroeconomic and labor market conditions ("The Big Stay") persist longer than anticipated, further suppressing demand for staffing services and delaying the return to profitability.
• Execution Risk: Successful execution of the cost reduction initiatives, system integration, and organic growth strategies is critical. Failure to achieve targeted savings or generate sufficient new business could undermine the path to profitability.
• M&A Integration Risk: While M&A is a growth driver, there is always a risk that acquired businesses may not perform as expected or that integration challenges could disrupt operations and dilute expected accretion.
• Competition: The staffing industry is highly competitive. Larger players with greater scale, resources, and technological advantages could exert pricing pressure or capture market share, particularly in high-volume segments. The increasing use of AI and online platforms by indirect competitors also poses a threat of commoditization.
• Talent Availability: Despite the current slowdown, the ability to attract and retain qualified candidates, particularly in specialized professional verticals, remains crucial for fulfilling client demand when it returns.
• Reliance on Key Verticals: While focusing on professional verticals is strategic, heavy reliance on sectors like IT and Finance/Accounting makes the company vulnerable to downturns specific to those industries.

Conclusion

GEE Group operates in a challenging staffing market currently grappling with significant macroeconomic headwinds. The recent financial results reflect this difficult environment, marked by reduced demand and non-cash charges that resulted in substantial reported losses. However, beneath these figures lies a company with a clear strategic response and a solid financial foundation.

The core investment thesis centers on GEE Group's ability to leverage its strong balance sheet and experienced management team to navigate the downturn through aggressive cost management, operational enhancements (including strategic technology adoption like AI and offshore recruiting), and accretive M&A. By focusing on streamlining operations and integrating acquisitions, the company aims to restore profitability in the near-to-medium term, targeting late 2025 or early 2026. While smaller than its largest peers, GEE Group's niche expertise and targeted approach provide differentiation. Investors should closely monitor the pace of market recovery, the successful execution of the company's strategic initiatives, and the impact of technology adoption on efficiency and competitive standing as key indicators of progress towards realizing its potential and enhancing shareholder value.