Q3 2023 GEE Group Inc Earnings Call

Participants

Derek Dewan; CEO & Chairman of the Board; GEE Group Inc.

Kim Thorpe; SVP & CFO; GEE Group Inc.

Presentation

Derek Dewan

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 and 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 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.
During the presentation, we'll 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 (technical difficulty) based upon rounded amounts for purposes of this call. And all amounts, percentages, and related items presented are approximations, accordingly. For your convenience, our prepared remarks for today's call are available in the Investor Center 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, taking 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 (technical difficulty) over to Kim, I (technical difficulty) the quarter. The 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 future 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 share repurchase program 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 repurchased 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 has 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 -- our 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

Thank you, Derek, and 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 in comparison with comparable fiscal 2022 periods. The lower fiscal 2023 revenues were mainly attributable to 2022's record-high performance in direct hire placement revenues.
Despite this and the headwinds we've faced so far in fiscal 2023, there are some notable positive results, including substantive growth in our professional contract services businesses led by our IT brands. Our financial performance so far in fiscal 2023 also is on par and better in several respects than that of other publicly traded staffing companies. And we remain reasonably optimistic about performance for the remainder of the fiscal year.
Professional and industrial contract staffing services for fiscal 2023's third quarter were $33.0 million, which is near level with the comparable fiscal 2022's third-quarter contract staffing services. Professional contract services revenue, our largest contract services segment, represents 90% of all of our contract services revenue and 78% of consolidated revenue, and increased $800,000 million, or 3%, quarter over quarter.
The bright spots in these comparisons were that our professional finance, accounting, and office; and IT contract services revenues both grew in the quarter, with IT revenues achieving 9% growth year to date. IT contract services has now grown to 59% of all professional services contract revenue. And IT direct hire and contract services revenue combined represented 49% of consolidated revenue, nearly 50%.
Direct hire placement revenue for the fiscal 2023 third quarter was $5.2 million compared with the fiscal 2022 third quarter of $8 million. As Derek and I mentioned earlier, fiscal 2022 was a record-high year for direct hire placement services. And, in fact, our June 2022 quarter set the record as our highest June quarter ever for direct hire placement services. Our direct hire placement revenue for nine-month period ended June 30, 2023, was $15.8 million.
Industrial staffing services revenues were $3.2 million and represented 8% of total revenue for fiscal 2023's third quarter ended June 30, 2023. We continue to experience growth challenges in our light industrial markets, which we attribute in part to the lingering presence of some COVID-19 holdover relief programs available to workers in Ohio.
We believe and observe that these programs tend to cause our light industrial temp workers to moderate or reduce their work hours in order to balance income streams in favor of preserving government subsidized benefits, which they may lose if their earned income is too high. Recent inflation also has led us to increase hourly wages and benefits for contingent workers in our light industrial businesses in Ohio.
These conditions also increase competition among staffing firms in the Ohio markets for laborers to fill temporary staffing job orders. We are actively introducing new sales and recruiting programs to help attract and retain candidates and restore growth in our industrial businesses. We also have implemented price increases in Ohio, which have been successful to an extent in helping mitigate the impact of inflation and labor conditions there.
Gross profit for the fiscal 2023 third quarter was $13.7 million, down $2.8 million, or 17%, compared with fiscal 2022 third-quarter gross profit of $16.5 million. Our overall gross margins were 35.8% and 40.1% for the fiscal 2023 and 2022 third quarters, respectively. The declines in gross profit and gross margin, again, are mainly attributable to lower direct hire placement business, which has 100% gross margin.
On the contract side, increases in contractor pay associated with recent inflation also caused some spread compression within our professional services businesses. The company has recently stepped up counter-inflationary increases in mark-ups, bill rates, and spreads in order to address recent margin compression. Despite lower quarter-over-quarter gross profit and gross margins, our current margins remain relatively high and are very competitive as compared to the company's peer group.
Selling, general, and administrative expenses, SG&A, for the fiscal 2023 third quarter ended June 30, 2023, decreased by $1.1 million, or 9%, compared with fiscal 2022's third quarter. SG&A expenses were 30.8% of revenues for fiscal 2023's third quarter, compared with 31.3% for the third quarter fiscal 2022. In late February and March 2023, the company implemented certain cost reductions with estimated annual savings of approximately $4.0 million.
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. We are now beginning to see the benefits of our counter-inflationary measures and other targeted cost reductions to help improve our expense ratios and margins
We achieved net income for fiscal 2023's third quarter of $7.9 million, or $0.07 per diluted share, as compared with net income of $2.6 million, or $0.02 per diluted share, for fiscal 2022's third quarter. The quarter-over-quarter increase is mainly attributable to the deferred tax benefit of $6.8 million recognized in the quarter associated with the reversal of what was a 100% allowance that we carried as an offset to our deferred tax assets.
To put the significance of this further into perspective that is beyond the [amount] we have been required to carry this 100% valuation allowance since the acquisition of General Employment Enterprises by Scribe Solutions in 2014 that formed our, your company, GEE Group Inc., as it stands today. The tests and criteria that must be met to accomplish this release are highly technical and highly scrutinized by management and our independent auditors. However, in the simplest of terms, and as Derek touched upon in his opening, it also is significant in that the company was required to demonstrate both its historical profitability and outlook, that it is no longer -- that the allowance is no longer required.
Adjusted net income, which is a non-GAAP financial measure, for the fiscal 2023's third quarter was $8.1 million, or $0.07 per diluted share, as compared with $3.1 million, or $0.03 per diluted share, for the fiscal 2022 third quarter.
Adjusted EBITDA, which is a non-GAAP financial measure, for the fiscal 2023 third quarter and year-to-date ended June 30, 2023, was $2.1 million and $5.8 million, as compared with $4.2 million and $11.5 million, respectively, for the comparable fiscal 2022 periods. Several factors we've covered, including notably, the decrease in fiscal 2023 direct hire revenues so far from fiscal 2022's record highs as well as inflationary pressures present this year, particularly on wages, account for the declines. We also expect the cost reductions we implemented in February and March this year to continue to help mitigate inflationary increases on costs and expenses going forward. And of course, we will take other measures necessary to improve our margins and profitability where available.
Our current -- our working capital ratio at June 30, 2023, was 4.1 to 1, up 139 basis points from 2.7 to 1, at September 30, 2022. Adjusted free cash flow, which is a non-GAAP financial measure, for the nine-months ended June 30, 2023, was $4.3 million, which excludes the effects of the second and final installment of deferred FICA taxes of $1.8 million that were deferred under the CARES Act, which were paid in December 2022.
Our liquidity position remains strong, and we have no outstanding debt. Our net book value per share was $0.96 at June 30, 2023. And our net tangible book value per share was $0.35, both up significantly since September 30, 2022. And the company, as Derek mentioned, has 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 was authorized on April 27, 2023.
To conclude, we remain positive in our outlook for fiscal 2023, with appropriate consideration of the uncertainties and unknowns that exist in our operating environment now. Before I turn it back over to Derek, please note that reconciliations of GEE Group's non-GAAP financial measures discussed today with their GAAP counterpart can be found in supplemental schedules included in our earnings press release.
Now, I'll turn the call back over to Derek.

Derek Dewan

Thank you, Kim. The fiscal 2023 third quarter marked our eighth consecutive quarter of strong operating performance since de-leveraging 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 facility. GEE Group's prospects today for future profitable growth continue to expand and improve. Despite macroeconomic headwinds and unforeseen events (technical difficulty)

Kim Thorpe

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, and significantly increase 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 have shared with you today.

Question and Answer Session

Kim Thorpe

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 or the professional contract services and direct hire segments ran separately? Or do they share staffing and/or customers? Thank you.
That's a good question. The businesses or 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 [scrub] or 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 I guess.
But thank you for the question. I have another question in relation to 2019 and 2022. What are you guys expecting for the Q4 '23 and full year on 2024? I'm going to presume that the question is, how do we think we're ultimately coming out of 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 slowly come out of the pandemic, there were new variants of COVID and things like that. And there were also some 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. But in any event -- oh, hey. Sory,

Derek Dewan

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

Kim Thorpe

Okay, Derek. I'm looking at the question. And I was just answering a question in relation to 2019 and 2022, what are you guys expecting for Q4 of '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 those 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

Yeah, 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.
The next question, Kim, was pretty much covering pricing. And I will -- do you want to talk about that because you were instrumental in --

Kim Thorpe

Yeah, I'm glad to. We recognized, actually, about a year ago that -- well, more than a year ago -- that inflation was occurring. And we began to see increases in wages not only in our core staff that operate the business, but also in our temporary staff. In the case of our temporary staff, there is some built-in hedging in the way we price to begin with in the structure. Because we start with the rate per hour for our temporary contractors or workers, and then we add a spread to that.
Be that as it may, we began in earnest over a year ago directing our businesses to go to our clients and seek price increases. And fast forwarding from there, I would tell you over the last 12 months or so, we've achieved low to high, in some case, single-digit, rate increases. And then with respect to our industrial business, in some cases, we've gotten even higher double-digit rate increases some.
So -- and going forward, you probably will see more robust retention to rates while we watch inflation and while we remain mindful of it.

Derek Dewan

Okay, thank you. The next question is a question about the scope of a 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 other consultant just to take a look at all the different alternatives in corporate structure, acquisitions, buybacks, and so forth to see if we're maximizing our 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 strategic review? Again, we'll let you know more after that happens. Share is trading over $1.50 before the COVID, with over [$108 million] in debt that you paid off over two years. Can you provide a breakdown of the professional contract services revenue, IT, F&A, and other? How have that evolved over the past two years? Kim, why don't you address both the capital structure and the different verticals and how they look right now?

Kim Thorpe

Yeah. All right. Thanks. The reason that the shares are trading where they are now as opposed to $1.50 is that before COVID, we had 18 million shares outstanding. In the follow-on offering that we completed to raise the funds to pay off all the -- the remainder of the $108 million in debt that you referred to, we sold [95 million, almost 96 million] shares. So that accounts for the dilution between $1.50 and $0.50-some odd trading range that it's been in recently in addition to the other market forces that are out there at work on the entire staffing industry.
As far as the breakdown of professional contract services revenue, IT, F&A, and other, as I mentioned in the script, IT is 59% of professional. F&A is probably the second largest. And those two together account for about 85% to 90%, the other portions being medical, engineering, and some other professional specialty, smaller specialties.
How have these evolved over the past two to three years? Very simply, IT is overtaking its spot and accelerating and becoming a bigger portion of all our professional services revenue. And it's mostly because of its growth. In fact, during the COVID pandemic, one of our IT brands actually grew, which was a total surprise.
But it turned out that because of all the -- not layoffs, if you will, but all the office locations closing during the pandemic and sending people to work from home, it actually generated more business for our IT, so -- at least one of our IT brands. The other ones tended to lose some revenues during the pandemic. But IT is a coveted vertical in professional staffing. It tends to fetch the highest multiples in valuation terms. And it tends to be not as sensitive to changes in economic conditions because IT is becoming so much -- just in a nutshell, has become so much of a factor in our total infrastructure.
So anyway, Derek, do you want to add anything to that?

Derek Dewan

No, I think you did great. Thank you. The next question is relating to your client industry verticals. And we have -- we're fortunate that we have diversity in our clientele. Four of the big segments of our clientele's industry group would fit into telecom, tech, manufacturing, and financial services. And within those entities, we staff everything from finance professionals, controllers, other accountants, analysts, and so forth.
We have a banking specialty group doing permanent hires. We also have a big presence in the tech departments for placing IT workers across all the verticals. So we're very diverse and not concentrated heavily, too much, on one particular industry segment. And that helps a lot when you have ups and downs within a segment. So we feel fortunate in that regard, and our client penetration rate's pretty good. And we continue to get more business from existing clients as well as new clients, so we're very fortunate in that regard.
Okay. The next question, can you elaborate on the agreement with Red Oak? Red Oak is our larger shareholder. And representing our largest shareholder is David Sandberg, who joined our Board. We put that information out publicly. Mr. Sandberg's 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.

Kim Thorpe

Bring on the table.

Derek Dewan

So the answer to that is there are always -- there's 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 cap 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 in a good, upward momentum. So --
And let's see what the next question is. Is the option of selling GEE Group in 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, the shareholders, and for all the employees that continued on with the acquire.
So events happen. Our goal is to maximize the profitability and value of our company as a standalone. And if someone wants to buy our company, then they can put an offer on the table as they should. And as 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.
Next question is the -- let's see. Okay, this is a long one. Can you comment on the 50% requirement of the outstanding stock that Red Oak must own? Okay. If not, Mr. Waterfield could be pushed out of the Board. So Mr. Waterfield and Mr. Sanberg are now on the Board and will be active Board members. And we're happy to have them on board.
I can say that that provision that was read doesn't mean that -- it means that they need Mr. Sandberg and Red Oak has to keep a certain equity interest in the company to maintain his Board seat through the agreement. It doesn't mean that he has to leave the Board if the Board would like him to stay. So that's just a provision, that we want our Board members, particularly those that come on with a big shareholding interest, to stay continually involved to the extent that it makes sense for them to. But we do have a provision in the agreement that says if their ownership falls below that level, then the Board could say that you have to leave the Board.
I would venture to say that the value that these two Board members bring to the table is a lot of experience and financial knowledge, investment knowledge. And we're going to utilize the talent, as we do with all of our Board members. So we look forward to engaging with our new Board members.
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 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.
How many shares could you buy back per day now? So that's a great question. I'm glad they asked 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 non-public information. And we explained that in our release and in, 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 10b-18. 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 set it up. 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 is (multiple speakers)

Kim Thorpe

25% of that, I believe. Yeah.

Derek Dewan

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 non-public 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. And 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

Yeah. The -- I'm sorry, say -- repeat the question again (inaudible)

Derek Dewan

Just on mitigating the dilution with the buyback. We issued a lot of shares.

Kim Thorpe

Yes. Yeah, we did. We issued almost 96 million shares in April of 2021. We bought back, so far, 1.5 million shares. We have a long way to go. We are allowed, in certain cases, to acquire blocks, but there are special rules around that as well. But we -- over time, we've now positioned the company so that we're generating cash, we're able to maintain significant cash, and continue to support the buyback program. And as time goes on again -- and I'm going to level set the price, let's say, of where we are right now.
If we were to stay there, which we don't expect to do and don't want to do, but if we did, eventually, we'll buy back enough stock so that the price per share has to go up because of the accretive nature of stock repurchases. So we actually are -- with the approval of the $20-million program -- and of course, the Board at the end of December this year can reinstitute it or re-up it or whatever, which we would do under these circumstances almost certainly, it creates a process where, in addition to earnings, we will increase shareholder value by reducing the number of outstanding shares.

Derek Dewan

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 acquisitions.
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.
The next question that we have is your net operating loss carryforwards. Kim, do you want to comment on that? What are the --

Kim Thorpe

Yeah. Let me come back and get you the actual number that's disclosed in the last 10-K, and I can guesstimate it from there. But I think it's about $18 million (inaudible) but I don't have a figure at hand. But I'll find it and report it in just a second.

Derek Dewan

Okay, great. Another question is, are your shares trading at four times the EBITDA run rate right now, net of the cash? Yeah, I think that's -- a four times run rate, I mean, represents the undervalue that we're at. Consider that normalized EBITDA, we've reached some high numbers in the past, the $12 million to $14 million range. So I think you're right on track with your calculation of where we're at today.
And what it shows is there's tremendous upside. And we anticipate that upside occurring as things get better economically and also with actions that we're taking internally on pricing, cost reduction, cost control, new business development, and so forth, and also bringing strategic acquisitions. Buybacks don't increase EBITDA, but they do increase earnings per share. So -- and they tighten the share count up as well. So the combination of all of the different programs will add value to us going forward and increase share.
How many shares could you buyback in a day? We got that.

Kim Thorpe

Yeah. Derek, on the NOLs there, we had $17.7 million on a federal tax basis at the end of last year. So if you just kind of mark that off against -- and this is very rough. Against this year's year-to-date pretax income, it leaves you around $12 million or $13 million or something. But again, there are other adjustments to that, so I don't have an exact figure. But they're still significant.
Hello? Derek, are you there? Okay. I'm going to keep going. There's a comment. Congratulations on net income. It seems there's a $6.7 million gain on taxes. Please elaborate.
We talked about this in the call. And long story short, there is a -- we've been required since inception to carry a 100% allowance against the deferred tax asset. The deferred tax asset exists in part because of our NOLs and some other timing differences, including, notably, the fact that we amortize intangibles and goodwill for tax purposes in some cases that we for book.
Having said all that, the key to being able to recognize your deferred tax assets is being able to demonstrate more positive than negative evidence to overcome the more likely than not test. The biggest key aspect of that is being able to demonstrate consistent profitability. And the standard rule of thumb is 12 consecutive quarters of consistent profitability, which we've now achieved through June of 2023.
That in turn, allowed us to reverse a lion's share -- that most of the asset. The remainder of the asset, by the way, a small portion, about 10% of this, will reverse in the fourth quarter because it becomes part of the overall calculation. How much cash are you guys targeting to use for buybacks on a quarterly basis, given the stock remains depressed?
Our cash position, as Derek mentioned and I think I mentioned, we have $20 million or more, almost $21 million in cash. We're generating cash. And at the rate of open market purchases, we are not in any danger of running out of cash. By virtue of stock buybacks, we will keep buying the stock aggressively. And now, with the 10b5-1 plan, we'll be able to do more in that regard.
So we don't have a budget per se. But as long as we have the amount of excess cash we do, you can expect that we'll be fairly aggressive. And the stock remains undervalued. You can be certain we'll be fairly aggressive in our buybacks.
A percentage of sales, what's the cost cuts (inaudible) what is your expected SG&A expense? Our target is to get to [30] or even below 30. That's also impacted by, again, some uncertainty that's still out there in the economy, what we refer to finally on the call as the headwinds, so to speak, which really are inflation and, more than that, the impact that inflation and the threat of recession or other negative economic conditions continue to cause our clients to maybe pump the brakes a little bit on utilizing our services.
But once the economy gets back to normal, call whatever that is these days, you should expect that it will perform very well. And given the things that we're doing and putting in place now, we are targeting again for a 30% or lower SG&A ratio to revenue. That's a goal and a target.
GEE Group has changed stock buyback program. Please elaborate. And also, what is going on with the tender offer to entice some shares? We -- at this stage, we just reformed our Board. We brought on three new members. We have a reinvigoration. We have a stock repurchase program.
And one of the things that we've mentioned in the Q&A here that we'll be doing and that you all have noticed that we publicly filed is we will be looking at strategic alternatives. And I'm quite certain that a tender offer will be one of the things that are on the list of things for us to look at, the Board that is.
Are there any other large activist shareholders eyeing 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.
Could you elaborate? But let me back up on that one. There could always be that. We have a lot of cash. We're performing well. There's new interest now. We have -- we're excited to have Mr. Sandberg and Waterfield join the Board. We have another new Board member, Jyrl James, who we haven't given them due shout out to.
Jyrl joined our Board also effective with this last round of reorganization. She is a tremendous executive. She's an attorney. She, at one-time, was General Counsel for Adecco. And Adecco was obviously the successor company to Modis. But her time at Adecco post -- was after Derek's and our Board Members that came from Modis. She is she's very pleasant, and I think she's going to be -- add a lot of value to the Board as well.
Could you elaborate on the task of the Director C, 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 had joined that committee, as indicated in the documents. And we expect to have a very robust discussion around the M&A. But as of now, there are no plans. An agenda has -- a detailed agenda has not been set for that committee.
Can you give an update on the candidate availability, particularly by job level or skills? Great question on the operations of the company. I think the candidate availability has improved over the last 12 months. There's still a particularly -- as we've mentioned, in the light industrial sector and, to some extent, in the finance, accounting, and office sector, there's still a bit of catching up, we think, to do -- to be done there.
And one of the things we look at -- and there's actually a slide in the corporate presentation on this on our outlook page -- is we track the -- believe it or not, there's a chart prepared by the Federal Reserve Bank in St. Louis on behalf of the Fed that tracks all commercial deposits in banks across the United States. And then we look at that and the trendlines on that chart, and it still shows that there's such amount of excess money still out in the economy that is obviously, at least, causing -- taking some people out of the labor participation rate, which is also still below where it was below the pandemic.
You can also see that the labor participation rate is beginning to rise. And we believe that those when two trends merge with one another, that they will be back in a position like we were before the pandemic. But it's a great question. Candidate availability is always paramount to us. Our candidate availability is reasonable right now and in line with our peers.
Where are your taxes going forward? Assuming your quarterly pretax income is $1 million, what would be your cash taxes? We still had, as of the end of last fiscal year, about $17.7 million of NOLs to burn off. So $6 million in change of that is a -- can be carried forward indefinitely. So we expect that to reduce our cash federal taxes.
We also have about $14 million of NOLs for state tax purposes. So as of now, most of our cash taxes -- in fact, all of our cash taxes are basically paid to state income tax jurisdictions and -- state and local. And so our overall, call it, paid tax rate is probably around 4.5% to 5%. And again, that's just a good average for state income tax rates.
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. That -- all these questions again will be taken up by the Board as it looks at strategic alternatives.
Post quarter, how much has cash change given additional buybacks? Good question. You take just under 1.5 million shares less the 870,000 that we've bought from -- since June 30, which were disclosed in the Q and in the earnings release. the difference is 700,000 or so. And you can assume the market rate of acquiring those, so probably 350,000 or 400,000 would be a good estimate for that.
Sorry, I might have missed it. Could you explain what the deferred tax assets are and what their -- what's their impact? I've already talked about that. It's -- please take a look at the earnings release and the 10-Q for additional information on that.
Can you comment on other assets and liabilities which have at times seen some wild swings? The swings primarily in other liability had been in other liabilities. And since 2020, they had -- there was $3.6 million of deferred [FICA] in that number. In addition, in this quarter, we -- now that the allowance has been taken away from the deferred tax asset, it's been -- we've gone from a net deferred tax liability to a net -- to a deferred tax asset. And that's been re-classed against other assets. So that also had the impact of causing a 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 -- but do people know you find people jobs in the USA only and danger outside the USA? I'm not sure I completely understand the question there. It's a little bit of muddled.
There is another -- Red Oak's prior demand was to split the CEO and Chairman role after the cooperation agreement. Does this mean there is still the Chairman of the Board? Derek is still the Chairman of the Board. Thank you.

Derek Dewan

Derek is still the Chairman of the Board.

Kim Thorpe

Derek, are you there now?

Derek Dewan

Yeah, I'm here. I've been here. You're doing a great job.

Kim Thorpe

Okay. All right. Thank you very much.

Derek Dewan

If you read the cooperation agreement closely -- one of the things in the governance arena for public companies to make sure you have Board members that are independent and that you don't have too much concentration of a director, in particular, in that there's objectivity on the Board from a governance standpoint. So one of the recommendations that Red Oak has made was to separate -- previously, to separate the CEO and Chairman position. An alternative to that was to appoint a lead independent director.
And if you see the agreement, the cooperation agreement, a lead independent director has been appointed. It's also in the press release. And it's Tom Vetrano, who's an outside director. He's been on the Board since 2020. And we felt that was a good governance move, and it also satisfied Red Oak as well.
And again, suggestions made by any shareholder will be looked at. And if appropriate, action will be taken. We felt good about that decision, and we also feel good about the cooperation agreement that was entered into. And we're back to business, all working together toward a common goal of getting our share price up.
And I like the question about the $2 price target. That's pretty good. I set my sights even higher, personally, but we have to take it a step at a time. So can this company be valued appropriately at a $2 price target? Of course.
We have to deliver certain results. We need to have some good macroeconomic conditions and some momentum as well, all of which will happen. I've been through several cycles myself, both with this company and a predecessor company and was able to deliver a very, very good shareholder value.
So I thank you all for the comments and also the observations and advice. One other question, and then we'll call it a day. It's about, let's see, nominal upside since the stock is so -- what is the target price, $1.2 or $1.4 or $2?
The target price, at least by the analyst community, is $1-point -- is $2 at this point. So we have to take each step at a time. It wasn't too long ago that we were over $1 per share. And it's -- now it's $1.80 pre-equity offering. So all these are stepping stones toward getting to a pretty high number.
And rest assured, we won't be satisfied until we get to much higher targeted share prices, increasing our market cap and delivering value for all the shareholders. So we're very optimistic. We appreciate your investment. We appreciate you being part of our team as shareholders or interested parties. We look forward to good things going forward.
And I thank you. And that will conclude the call for today.