As Derek Dewan becomes CEO of General Employment Enterprises Inc., the Jacksonville executive is not only taking on a company looking to grow but also a company looking for a turnaround after three years of losses.
General Employment, a Naperville, Ill.-based staffing company, agreed two weeks ago to buy Jacksonville-based Scribe Solutions Inc. As part of that deal, Scribe Solutions Chairman and Chief Executive Dewan will become chairman and CEO of General Employment.
General Employment is a staffing agency that traces its roots back to 1893, but its future has been in doubt recently.
According to its annual report filed last week with the Securities and Exchange Commission, the company recorded a net loss from continuing operations of $1.1 million, or 5 cents a share, for the fiscal year ended Sept. 30. That was its third consecutive yearly loss.
“There can be no assurance that the company will not incur losses in the future. Although the operating expenses have decreased, there are no assurances that the company will be able to generate sufficient revenue to meet its operating expenditures or operate profitably in the future,” the report said.
Revenue fell 14 percent in fiscal 2014 to $39.8 million. The report said the decrease was due in part to Hurricane Sandy-related work which increased 2013 revenue, but also due to the closing of some offices in 2014.
General Employment discontinued an agricultural staffing business in July that had produced $6.8 million in revenue in 2013. However, that division was losing money.
“The agricultural staffing service was considered a niche business that required a high capital reserve to cover the weekly payroll,” the annual report said.
General Employment’s main business is temporary staffing for light industrial clients, which accounted for 63 percent of its revenue last year. It also provides staffing services for information technology, engineering and accounting professionals.
Scribe Solutions will add the field of medical scribes, who provide documentation services for physicians.
Besides General Employment, the company operates under trade names Omni One, Business Management Personnel, Ashley Ellis, Triad Personnel Services, Triad Staffing, Generation Technologies, BMCH, and BMCHPA. It has 18 branch offices in nine states.
The company has 140 employees, not counting workers that are placed through its staffing services, according to the annual report.
General Employment’s headquarters is in a 5,000-square-foot office outside of Chicago with a lease that runs until 2018, the report said.
Dewan told the Daily Record that no decisions have been made about moving the headquarters office to Jacksonville once he becomes CEO. In addition to Dewan’s appointment, Scribe Solutions President Alex Stuckey will become president and chief operating officer of General Employment after the merger.
Dewan will be General Employment’s third CEO in the last two years. Michael Schroering, whose investment firm controls 63 percent of General Employment’s stock, was named CEO in January 2013.
In March of this year, Andrew Norstrud became CEO, a year after he joined the company as chief financial officer. Norstrud will return to the CFO role after the merger with Scribe Solutions.
During the last two years, General Employment’s stock has been threatened with delisting twice by the NYSE MKT exchange. The NYSE MKT is the New York Stock Exchange’s market for small cap companies, which basically evolved from the former American Stock Exchange.
The annual report said General Employment was first threatened with delisting in 2013 because of delinquent financial reports but after the company caught up, it was threatened with delisting again because its equity level was below $4 million.
The company had $2.1 million of equity on its balance sheet as of Sept. 30 and was facing a deadline of Dec. 6 to increase its equity to $4 million. However, the annual report said the company had not received any additional notices from the NYSE MKT and it continues to trade on that exchange under the ticker symbol “JOB.”
The stock had been trading below $1 a share for several years but has been rising steadily since the Scribe Solutions deal was announced, going above $1 last week. It closed at 21 cents the day before the Scribe Solutions announcement.
The annual report expressed confidence that General Employment is on the right track.
“Management has implemented a strategy which included cost reduction efforts as well as identifying strategic acquisitions, financed primarily through the issuance of common stock and convertible debt, to improve the overall profitability and cash flows of the company,” it said.
General Employment plans to acquire Scribe Solutions by issuing convertible preferred stock valued between $6.4 million and $7.9 million.
Dewan, of course, has experience in growing a staffing company. He joined AccuStaff Inc. as CEO 20 years ago as that Jacksonville-based staffing company was preparing to go public. He then helped that company grow from less than $500 million in annual revenue when it went public in 1994 to more than $2 billion in revenue when the company, then named MPS Group Inc., was acquired by Adecco Group in 2010.
That track record is likely the reason for General Employment’s recent stock surge, as Wall Street is familiar with Dewan.
The major difference is that with AccuStaff, he took over a company that was solidly profitable under founder Delores Kesler. Based on its recent history, Dewan may be facing more of a challenge with General Employment Enterprises.
Analyst upbeat about CSX
CSX Corp. is the most widely covered Jacksonville-based company by Wall Street analysts, leading to a wide range of opinions on where its stock is headed.
However, one analyst who recently boarded the train is solidly behind the company.
Nomura Securities analyst Matt Troy started coverage of CSX with a “buy” rating and a $42 price target for the stock, which has been trading in the mid-$30s recently.
“Over the last decade, CSX has had one of the most interesting if not challenging journeys among the U.S. Class 1s,” said Troy in his report, referring to Class 1 railroads.
He recalled the proxy fight with a group of activist investors in 2007 and 2008. Once that was resolved, CSX had to deal with the recession and when the economy finally turned around, CSX was faced with a decline in its biggest business, coal shipments.
“Yet despite the structural headwinds CSX has faced, many investors have been attracted to CSX,” Troy said.
This year has brought new challenges for the company, he said.
“CSX struggled operationally in 2014 in the wake of weather-related congestion, which overburdened a network under-resourced to accommodate traffic growth as operations normalized later in the year,” Troy said.
“Yet as coal has stabilized and intermodal investments drive traffic growth at higher incremental margins, we believe CSX is poised to begin to structurally narrow the gap between its operating ratio versus industry peers as turnaround initiatives come to fruition in 2015.”
Improving the operating ratio –– operating expenses divided by revenue –– has been a major focus for CSX.
“With an estimated 2014 operating ratio of 71.2 percent, CSX is at the back of the pack among the Class I railroads, whose average of 65.3 percent begs the question: How much earnings power is generated if CSX closes the gap?” Troy said.
“We calculate that CSX could add an additional 40 cents in earnings per share if it achieves industry-average margins (as-suming no revenue growth), which equates to more than a 20 percent boost versus current 2014 consensus.”
Even CSX admits it will take a few years to get to that mid-60s target ratio, but Troy does think better times are ahead.
“While we are reluctant to use the scariest five words on Wall Street (‘it’s different this time around’), we believe the foundation is in place such that the next three years at CSX should be better than the last three, creating the opportunity to be constructive on the stock heading into 2015,” he said.
According to Thomson Financial, 11 analysts currently rate CSX as a “buy” while 17 rate it as a “hold.”
ParkerVision gets litigation funding
ParkerVision Inc. last week announced a deal with a “litigation investment firm” to help fund its ongoing patent fights.
Jacksonville-based ParkerVision, which has developed wireless technology to improve the performance of mobile devices, is engaged in several legal battles over the patents for its technology.
The company last week announced an agreement with a litigation investment firm called 1624 PV LLC to fund up to $7 million in legal fees and expenses. The investment firm will then be entitled to a share of potential proceeds from ParkerVision’s legal battles, and from other monetization of the patents.
ParkerVision also said 1624 PV is spending $1.3 million to buy warrants that would allow the firm to purchase ParkerVision stock.
ParkerVision gave no other details about 1624 PV, and the firm is not registered with the Florida Department of State’s Division of Corporations.
CEO Jeff Parker said in a news release that the deal reflects “the funder’s belief that ParkerVision’s patent portfolio of over
250 patents holds significant value and provides numerous ways to generate meaningful revenue in the near and longer terms.”