The Judge Group, Inc.

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The Judge Group, Inc.

2 Bala Plaza, Suite 800
Bala Cynwyd, Pennsylvania 19004
U.S.A.
Telephone: (610) 667-7700
Fax: (610) 667-1058
Web site: http://www.judge.com

Public Company
Incorporated: 1970
Employees: 307
Sales: $103.06 million (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: JUDG
NAIC: 541512 Computer Systems Design Services Company

The Judge Group, Inc. provides staffing services on a contract and permanent placement basis through branch locations located in 14 U.S. cities. The company specializes in supplying professionally trained personnel to companies involved in information technology, engineering, pharmaceutical, biotechnical, and other high-technology fields. The Judge Group augments its staffing services with a range of Web-based software used in the management of personnel.

Origins

The Judge Group was founded by Martin Judge, a Villanova University graduate who earned his Bachelor of Science degree in business administration in 1968. Two years after leaving Villanova, Martin Judge started what would become known as The Judge Group, forming the company in March 1970 and incorporating it in June 1970. The company started as a staffing services company, providing personnel trained in engineering and other high-technology fields to corporations on a permanent basis. The permanent placement of professionally trained personnel gave the company its footing in the business world, but in later years The Judge Group expanded beyond its home state of Pennsylvania and diversified its business activities, creating a more complex, significantly larger firm than The Judge Group of the 1970s. The story of The Judge Group’s development revolves around its efforts to become a larger, more complex company, a process that, as Martin Judge would later concede, was a struggle.

Before Judge and his management team grappled with problems stemming from rapid growth, they enjoyed years of consistent and impressive financial performance. In 1982, the company began recording appreciable sales growth, racking up 30 percent increases in its revenue, compounded annually—a pace it would maintain for 17 years. In 1985, The Judge Group moved into the information technology (IT) sector by providing IT personnel on a contract basis, an important and lasting addition to the company’s business scope. In the early 1990s, the company greatly expanded its geographic presence by establishing a national division in 1991 in Foxborough, Massachusetts. Through its national division, The Judge Group provided IT, engineering, and scientific personnel to larger corporations on a contract basis.

As the company was strengthening the range and geographic reach of its contract and permanent placement services, it also added another facet to its business. The Judge Group began providing networking, imaging, and document management services, as well as selling computer hardware and software products. This segment of the company’s business was initially created to design networks using the company’s private label personal computer products, which were sold to the educational market. The potential of the business was hobbled, however, by low profit margins in the educational market. To increase profitability, The Judge Group entered the document imaging business—an area of particular importance to Martin Judge—in 1988.

A Plan for Growth Formed in 1995

Martin Judge decided in early 1995 to greatly accelerate the growth of his privately-held company. Part of the strategy aimed at expansion included a company reorganization, as well as the addition of new services, the completion of strategic acquisitions, and geographic expansion. Beginning in early 1995, the company added sales, marketing, administrative, and engineering personnel to its four existing regional offices, as well as to its national division in Foxborough. To further support the expected increase in business, The Judge Group opened a fifth regional office, establishing it in Edison, New Jersey.

Part of Martin Judge’s desire to accelerate expansion could be found in encouraging growth projections for the industry segments in which his company operated. Industrywide, the market for technical and computer contract staffing services was growing robustly, with revenues swelling from $5.7 billion in 1993 to $9.2 billion in 1995. Industry analysts were predicting overall revenues to reach $11.4 billion in 1996. From this industry segment, The Judge Group collected its sales in two ways, depending on whether the personnel provided to the corporations were placed permanently or on a contract basis. Temporary placements generally lasted between six and 12 weeks, in which case The Judge Group billed its client on an hourly basis. In 1995, the company had 1.3 million billable hours, which, at an average rate of $38.99 per hour, accounted for nearly 36 percent of the company’s total revenues. Clients for The Judge Group’s permanent placement services were charged a one-time fee, usually one percent for each thousand dollars of the salary of the person being hired.

The expansion-oriented strategy implemented in 1995 also included a series of acquisitions, which enabled the company to quickly increase its portfolio of services. The company’s acquisition campaign was launched in February 1996 with the purchase of DataImage Inc., a Hartford, Connecticut-based provider of imaging and document-management services. In September 1996, the company struck twice, acquiring Berkeley Associates Corp. and Systems Automation. The purchase of Systems Automation enabled The Judge Group to garner imaging and network clients in the Boston area, helping the company to expand beyond its primary base of customers in the mid-Atlantic States. The addition of Berkeley, a provider of IT training services since 1980, gave the company the ability to provide training on a range of computer network and software applications through three offices in Pennsylvania, Virginia, and Maryland.

Following the completion of the three acquisitions of 1996, the company’s reorganization was complete, finalized in October 1996. Martin Judge was not finished with his expansion strategy, however. To help pay for the acquisitions and to develop a national sales force, as well as to obtain additional capital for further expansion, he planned to convert to public ownership. Hoping to raise as much as $35 million, Martin Judge filed with the Securities and Exchange Commission for an initial public offering (IPO) of stock. The Judge Group’s IPO was completed in February 1997, raising $21 million. With the proceeds from the IPO, the company was able to retire $12 million of debt incurred from the acquisitions, but its new status as a publicly-traded company exposed The Judge Group to the dangers of falling short of Wall Street’s expectations. For Martin Judge, the problems stemming from expanding before the investment community’s eyes were about to surface.

Strategic Challenges in 1997

Several years after The Judge Group completed its IPO, Martin Judge conceded he and his management team had “lost focus when we initially went public,” according to a March 12, 2001 interview with Wall Street Transcript. The company’s revenues had jumped from $68 million in 1995 to $100 million in 1997, but profitability was another matter. During the company’s first fiscal quarter after its IPO, it failed to meet financial projections for its information management solutions division. The information management solutions division, which contributed nearly 20 percent of The Judge Group’s total sales, posted a loss of $900,000. Wall Street, rarely willing to ignore the first indication of financial trouble, reacted quickly, causing the company’s stock, which debuted at $7.50 per share, to plummet to $3 within two months. Martin Judge explained what had happened to the Philadelphia Business Journal in a May 29, 1998 interview, stating that the company’s sales managers “gave me false numbers.” He accepted responsibility, however, conceding, “It was my fault; I was company president,” before adding, “but I was out on the road talking to lawyers and investment bankers and when I got back and really looked at things, I saw they were wrong.”

Company Perspectives:

The Judge Group’s market strategy is focused on creating multiple revenue streams that take advantage of the many service-specific niches within the IT, engineering, and scientific staffing marketplace. These proven revenue streams originate from sources such as temporary contract assignment, permanent staffing placement, Web-based staffing platforms, Web-based recruiting platforms, and proprietary software for on-site staffing management. These niches have been targeted because they represent a combination of an established market, profit growth, and strong profit margins. With over three decades of experience in integrating IT staffing services with forefront technology, the Company has successfully identified and developed these market niches into profitable revenue streams.

In the wake of the financial loss, Martin Judge turned his attention to curing the problems at the company’s information management solutions division. The division’s payroll was reduced, ultimately saving the company $ 100,000 per month, and, in March 1998, new divisional leadership took the helm. The changes assuaged investor fear somewhat, helping the company’s stock to rise to $6 per share by May 1998, but the company was far from cleansing its reputation on Wall Street. According to industry pundits, The Judge Group was having a difficult time attracting the investment community to a company with a document management and computer imaging unit tied to a business whose reputation had been made in providing staffing services. The incongruity was exacerbated in some observers’ eyes by Martin Judge’s reputation as an iconoclast. One analyst, as quoted in the May 29, 1998 issue of the Philadelphia Business Journal, explained the perception: “Mr. Judge is a cowboy. He doesn’t follow the normal rules of being a chief executive officer. He thinks outside of the box and he’s hardheaded in what he believes. And what he believes is that imaging, or what used to be known as information processing, and document management is the wave of the future.” The broker continued: “He believes it’s worthwhile in investing in this technology, which so far hasn’t produced bottom-line results. It’s been rather a drag on the rest of the company.”

In the midst of the misfortune following the IPO, Martin Judge did not waver from his conviction that The Judge Group’s involvement in document technologies would ultimately pay off. One market research and consulting firm’s examination of the document technologies market supported Martin Judge’s visionary stance. Market revenues were expected to increase from $13.9 billion in 1998 to $33.6 billion by 2002, while the document management market niche was expected to triple, jumping from $2.9 billion to $9.5 billion during the same period. Taking every facet of The Judge Group’s business scope into consideration, the company—operating in what was categorized as the information technology services sector—was competing in a $230 billion market.

After restructuring the information management solutions division, Martin Judge was ready to resume expansion via acquisition. In March 1998, the company paid $4.3 million to acquire Information Solutions Inc., an information technology staffing and solutions provider with offices in Detroit and the United Kingdom. The following month, The Judge Group purchased Atlanta, Georgia-based Cella Associates, paying $1.3 million for Cella’s expertise in supplying executive personnel to the food industry. In May 1998, the company maintained its steady acquisition pace, acquiring On-Site Solutions, an Irvine, California-based provider of integrated work flow solutions. In July 1998, the company acquired computer technology reseller AOP Solutions Inc., a $2.3 million-in-sales company that assisted in the installation of computer networks and digital-imaging equipment. As Martin Judge orchestrated his acquisition spree during the first half of 1998, he also opened four new IT staffing offices, establishing one branch location in New York City and three offices in Southern states.

1999 Divestiture Hints at Recovery

By the end of the 1990s, the time had arrived for Martin Judge to reassess his commitment to Judge Imaging Systems, the information management solutions division that had long been a source of trouble. Roughly a year after attempting to strengthen the division with the acquisition of On-Site Solutions, Martin Judge decided to discontinue operations at the division. The imaging and document management business was dissolved in June 1999, concurrent with the closure of several unprofitable offices. As The Judge Group effected yet another reorganization, branch locations were shuttered in Seattle; Hartford, Connecticut; Needham, Massachusetts; and Melbourne, Florida. The dispositions left the company focused on IT staffing services and, through JUDGE.com, on Internet, Web-based products that assisted in human capital management.

key Dates:

1970:: Martin Judge founds his staffing services firm.
1985:: The company enters the information technology contract staffing services business.
1995:: A new strategy for rapid growth is implemented.
1997:: The Judge Group’s initial public offering of stock is completed.
1999:: Judge Imaging Systems is divested.

Once The Judge Group’s unprofitable assets were divested, the company began to exhibit consistent financial performance. By early 2001, the company had either met or exceeded analysts’ growth expectations for six consecutive quarters, helping to improve its tarnished reputation on Wall Street. Looking ahead, Martin Judge remained optimistic, having lost none of his belief in the strength of The Judge Group. Although he intended to expand the company’s IT staffing services business, particularly on the West Coast, his faith in the benefits of expanding via acquisition had been shaken. “I think we’ve learned through experience that acquisitions can hurt you more than they can help you,” he remarked in a March 12, 2001 interview with the Wall Street Transcript. “With the scars that we have and the scars that our industry has, I think after 31 years the acquisition approach will be one handled very prudently.”