Management Q&A Notes - GEE Group
Good Detail w/Kim Thorpe
These notes are from a 30 minute conversation I had with Kim Thorpe on August 17th, 2023.
Strategic Review
Although some activists have commented on discussing a potential sale of the company:
Goldenwise Capital Group has engaged, and intends to continue to engage, in discussions with management of the Issuer regarding opportunities to unlock value at the Issuer, including: Changes to Board Composition, De-staggering Board, Share Repurchase, Corporate Governance Improvement, Potential Selling of the Company.
- 13D
to me the probability of this happening without a drawn out battle between management and the activists is pretty much non-existent. Kim was pretty honest about why he and Derek are running this, to grow out of the microcap space and achieve an MPS Group like outcome again. Every corporate action and capital allocation decision forecast made by investors should be seen under that framework of thought. Given the aforementioned it is clear to me that management is not willing to sell and the most likely outcome from the strategic review will be a combination of an expanded buyback/tender offer along with likely further corporate governance policy changes to satisfy the two activist shareholders along with the silent support they carry amongst the remainder of the base.
*While I already knew management was here to grow much larger my view has changed to how large they want to become - I no longer think a sale would be on the table without a battle/change of management for at least ~1B in market cap.
Forward M&A
Incremental Costs of Integration - For a 20-30M in sales acquisition it would take “probably a half-a-million a the most.”
Financing - Kim emphasized a few times, and has in past calls, not overleveraging the business. His response towards acquisition financing was something to the tune of:
Only incrementally add leverage to match the accretive earnings that come on.
I proposed that getting the stock up to a fair value and using it as currency would be the most efficient way to grow to size although this may have been just in relation to me stating that they will need a lot of financing to get to the size they want.
AI - Hasn’t really impacted the calculus on what end markets to acquire in (IT first, healthcare second). JOB has previously attempted to use AI (~2018) to help recruiters screen through resume’s but ended up ignoring relevant candidates. In relation to this I think that AI in 2018 and today is completely different and larger scale competitors will/are looking for these efficiencies. Additional commentary regarding a subsidiary, Agile Resources, working with clients on potential AI consulting/applications. To me this seems like a natural business line for them in the coming years. Kim stated he uses GPT 4 and it helped him write the proxy, hopefully they stay on top of looking at the technology develop so they can appropriately respond to the challenges that will naturally arise with a technology that could be more impactful than the internet and the industrial revolution.
Housekeeping
Buyback Plan - Are indeed buying the max number of shares “I believe today” (08/17/23) in the context of:
Can’t buy back stock in the last 30 minutes of a trading day.
Can’t set the price higher (no higher than the ask).
Volume limited of 25% of the average volume over the prior four weeks.
Bonus Accrual - Will not be a surprise this year as last years accrual was an issue to do with the timing of a revised incentive compensation plan put in after Q3 but before Q4 which required them to recognize 2022 incentive compensation during Q4.
Direct Hiring Margins - On the SG&A side it carries higher incentive compensation which is 40-50% of gross profit so for every lost dollar in direct hiring income we can expect to get back around .40 to .50 cents on the SG&A front.