On Assignment Reports Results for Fourth Quarter 2012
On Assignment Reports Results for Fourth Quarter 2012
On Assignment, Inc. a leading global provider of diversified professional staffing solutions, has reported results for the quarter ended December 31, 2012.
Fourth Quarter Highlights
Revenues were $401.7 million and above the high-end of the previously-announced estimates.
Revenues were up 3.4 percent sequentially (1.6 percent excluding Nurse Travel). This was achieved despite approximately $1.2 million in lost revenues from Hurricane Sandy and 1.5 fewer billable days in the quarter.
Adjusted EBITDA (a non-GAAP measurement defined below) was $44.3 million, up 150.3 percent year-over-year.
Effective tax rate was 45.4 percent for the quarter and 43.1 percent for the full year. The rate for Q4 included the effects of higher than expected non-deductible expenses related to Apex Systems.
Net Income was $11.3 million ($0.21 per diluted share) compared with $7.5 million ($0.20 per diluted share) in the fourth quarter of 2011 and $17.4 million ($0.33 per diluted share) in the third quarter of 2012.
Net Income (before the $8.4 million increase in amortization expense of intangible assets) was $16.4 million ($0.31 per diluted share). In Q4, the valuation of the identifiable intangible assets and amortization methods were finalized for Apex Systems resulting in an $8.4 million retrospective increase in amortization of which $5.0 million related to prior quarters.
Leverage ratio (total indebtedness to trailing twelve months Adjusted EBITDA) was 2.73 to 1 compared with 3.79 to 1 as of May 15, 2012, the effective date of the acquisition of Apex Systems.
Commenting on the results, Peter Dameris, President and Chief Executive Officer of On Assignment, Inc., said, “During the fourth quarter, we achieved many milestones that we believe position us well for a strong performance in 2013. These achievements include exceeding the high-end of our Q4 estimates and reporting sequential growth despite approximately one and a half fewer billable days and the effects on our business of Hurricane Sandy. We also continued to pay down our debt and reduce our leverage ratio.”
Dameris concluded, “We recently kicked off a process to develop a five-year strategic plan for the company. We have engaged the Parthenon Group to assist us in this process and expect to review key aspects of our strategic plan with our shareholders and employees in the second half of the year.”
Sale of Nurse Travel Division
On February 12, 2013, the Company completed the sale of its Nurse Travel Division for $31.0 million. The Company has agreed to provide certain back office services during a transitional period. This division accounted for 4.1 percent of pro forma 2012 revenues and 3.4 percent of pro forma 2012 gross profit and will be reported as discontinued operations in the Form 10-Q covering the first quarter of 2013.
Fourth Quarter 2012 Results
Revenues were $401.7 million, up 148 percent year-over-year and 3.4 percent on a sequential basis. Excluding Nurse Travel, revenues were $380.4 million, up 157 percent year-over-year and 1.6 percent sequentially. Apex Systems, which was acquired on May 15, 2012, accounted for $207.6 million, or 51.7 percent, of total revenues for the quarter. The Company’s other segments reported combined year-over-year revenue growth of 20.0 percent (16.8 percent without Nurse Travel).
Gross profit was $121.3 million, up 126 percent year-over-year and 1.9 percent sequentially. Excluding Nurse Travel, gross profit was $115.6 million, up 131 percent year-over-year and flat sequentially. The year-over-year growth was primarily due to the inclusion of Apex Systems, which accounted for $56.8 million, or 46.8 percent, of total gross profit and the year-over-year revenue growth of the other business segments. Gross margin was 30.2 percent compared with 33.1 percent for the fourth quarter of 2011. The year-over-year compression in gross margin was attributable to the inclusion of Apex Systems, which has a lower gross margin than the Company’s other business segments. Excluding Apex Systems, the combined gross margin for the other business segments was 33.2 percent, up slightly from the 33.1 percent in the fourth quarter of 2011.
Selling, general and administrative expenses (excludes amortization of intangible assets) were $82.7 million, up from $79.2 million in Q3 and below the high-end of our estimates for the quarter. The sequential increase included costs of added headcount and other expenses in the operating divisions to drive growth in 2013 and in the corporate departments to enhance our platform to support the larger organization.
Amortization of intangible assets (which is not included in SG&A) was $11.9 million, up from $3.3 million in Q3. The increase was attributable to adjustments made in Q4 for differences between the finalized asset valuation and amortization rates for the customer relationship intangible asset related to the acquisition of Apex Systems and the preliminary determinations reflected in Q2 and Q3. These adjustments are on a retrospective basis to the purchase date and Q4 includes an adjustment of $5.0 million related to Q2 and Q3. The customer relationship asset final valuation was $92.1 million and is being amortized on an accelerated basis over a 10-year period using the customer relationship attrition rate used in valuing the asset.
Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization of identifiable intangible assets plus equity-based compensation expense, impairment charges and acquisition-related costs), was $44.3 million, up from $17.7 million in the fourth quarter of 2011 and down from the $45.5 million in the third quarter of 2012. The Adjusted EBITDA margin (Adjusted EBITDA as a percentage of revenues) was 11.0 percent compared with 10.9 percent for the fourth quarter of 2011 and 11.7 percent in the third quarter of 2012 (which had included $1.0 million benefit from the write-down of an earnout obligation).
The effective tax rate for the quarter was 45.4 percent compared with 42.3 percent for Q3 2012. The increase in the effective tax rate related to higher than expected meals and entertainment expense (which are subject to a 50 percent disallowance) from Apex Systems and the effects of full valuation allowances on deferred tax assets of certain of our foreign subsidiaries. This higher rate resulted in approximately $0.6 million increase ($0.01 per share) in the provision for income taxes. The effective tax rate for the full year is 43.1 percent, up from 41.4 percent in 2011 mainly due to the inclusion of Apex Systems.
Net income was $11.3 million ($0.21 per diluted share) compared with $7.5 million (0.20 per diluted share) for the fourth quarter of 2011. Income before income taxes included approximately $0.7 million ($0.01 per diluted share) in non-recurring acquisition costs. The $8.4 million increase in amortization expense on the customer relationship intangible asset discussed above, reduced net income $5.1 million ($0.10 per diluted share).
Financial Estimates for 2013
On Assignment is providing financial estimates for the first quarter and full year 2013. These estimates do not include any operating results from our Nurse Travel division (including the gain on the sale), acquisition-related costs or any expenses related to our strategic planning project. Those estimates follow:
First Quarter 2013
Revenues of $375 million to $380 million
Gross Margin of 29.4 percent to 29.7 percent
SG&A (excludes amortization of intangible assets) of $83 to $85 million (includes $2.0 million in depreciation and $2.6 million in equity-based compensation expense)
Amortization of intangible assets of $5.4 million
Adjusted EBITDA of $31 million to $34 million
Effective tax rate of 43 percent
Net income of $8.8 million to $10.5 million
Earnings per diluted share of $0.16 to $0.19
Diluted shares outstanding of 54.2 million
The Q1 estimates reflect normal seasonality in the business in which gross margins are lower sequentially due the reset of payroll taxes and SG&A expenses are higher sequentially due to headcount added in Q4 and Q1 to drive revenue growth for the year. The estimates assume year-over-year revenue growth of approximately 11 percent for Apex Systems, low teens for Oxford, a slight contraction for Life Sciences, low single digits for Physician Staffing and mid-to-high teens for Allied Healthcare. The estimates above assume no deterioration in the staffing markets that On Assignment serves.
Full Year 2013
Revenues of $1,605 million to $1,660 million
Gross Margin of 30.3 percent to 30.5 percent
SG&A (excludes amortization of intangible assets) of $350 to $375 million, which includes $9.0 million in depreciation and $14.5 million in equity-based compensation expense
Amortization of intangible assets of $21.0 million
Adjusted EBITDA of $164 million to $170 million
Effective tax rate of 43 percent
Net income of $56 million to $60 million
Earnings per diluted share of $1.02 to $1.09
Diluted shares outstanding of 55 million
The estimates assume year-over-year revenue growth of 10 to 15 percent for Technology (Apex Systems and Oxford), 8 to 10 percent for Life Sciences, approximately 11 percent for Physician Staffing and mid-to-high teens for Allied Healthcare. The estimates above assume no deterioration in the staffing markets On Assignment serves.