On Assignment Reports Results for Second Quarter 2013
On Assignment Reports Results for Second Quarter 2013
Revenues, Income, EPS & Adjusted EBITDA above High-end of Previously Announced Estimates
Revenues from IT Segments up 18.4 percent Year-over-Year
On Assignment, Inc. (NYSE: ASGN), a leading global provider of diversified professional staffing solutions, today reported results for the quarter ended June 30, 2013.
Second Quarter Highlights
Revenues were $417.9 million, up 15.4 percent year-over-year on a pro forma basis and 7.4 percent sequentially. Pro forma results, as used herein, assume that our acquisition of Apex Systems occurred on January 1, 2012. Pro forma operating results are summarized in a table below.
Income from continuing operations, excluding the write-off of loan costs, acquisition-related costs and strategic planning expenses, which were not included in the previously announced estimates (a non-GAAP measure set forth in the table below) was $17.4 million ($0.32 per diluted share), up from $11.0 million ($0.20 per diluted share) in the first quarter of 2013. Adjusted income from continuing operations (a non-GAAP measure set forth in the table below) was $25.5 million ($0.47 per diluted share).
Adjusted EBITDA (a non-GAAP measure defined below) was $44.2 million, up from $38.4 million in second quarter of 2012 on a pro forma basis.
Percentage of gross profit converted into Adjusted EBITDA was 35.5 percent, up from 34.4 percent in second quarter of 2012 on a pro forma basis.
Leverage ratio (total indebtedness to trailing twelve months Adjusted EBITDA) was 2.3 to 1, down from 2.88 to 1 at December 31, 2012.
On May 16, we closed on a new $500 million credit facility that expanded our borrowing capacity and flexibility and reduced our interest rates.
Commenting on the results, Peter Dameris, President and Chief Executive Officer of On Assignment, Inc., said, “Our results for the quarter were above our previously announced estimates and driven by strong year-over-year revenue growth and improved operating leverage. Our conversion of gross profit into Adjusted EBITDA was 35.5 percent for the quarter, up from 34.4 in the second quarter of 2012 on a pro forma basis and 30.1 percent in the preceding quarter.
“Our strong revenue growth was mainly driven by our IT businesses, Apex Systems and Oxford, which account for 80 percent of our business. Our IT businesses grew 18.4 percent year-over-year on a pro forma basis and 8.7 percent sequentially. In that sector of the market, we are the second largest provider of staffing services and we continue to grow faster than the overall market reflecting the benefit of our scale and operating models. We also believe we are benefiting from a shift in spending toward IT staffing and away from other IT services delivery models, such as consulting and offshoring, as CIOs continue to focus sharply on project flexibility and accountability and cost control.
“Our non-IT segments, which account for 20 percent of our overall business, grew 4.7 percent year-over-year and 2.2 percent sequentially. While these segments reported modest growth, we have not yet seen the returns on our investments in sales staff and recruiters. We are evaluating various actions in an effort to improve the growth rate and overall performance of these units.”
Dameris continued, “In May, we put in place a new $500 million credit facility. This facility improves our borrowing capacity and flexibility for acquisitions and stock repurchases and results in significant interest savings.”
Second Quarter 2013 Results
Revenues for the quarter were $417.9 million, up 57.2 percent year-over-year and 7.4 percent sequentially. On a pro forma basis assuming the acquisition of Apex Systems had occurred at the beginning of 2012, revenues were up 15.4 percent year-over-year. Virtually all the growth in revenues was from the Information Technology businesses (Apex Systems and Oxford), which grew 18.4 percent year-over-year on a pro forma basis and 8.7 percent sequentially.
Gross profit was $124.6 million, up 47.4 percent year-over-year and up 10.0 percent sequentially. This increase was due to growth in revenues and the inclusion of the operating results of Apex Systems for a full quarter. The year-over-year compression in gross margin was mainly attributable to the inclusion of Apex Systems for a full quarter, which has a lower gross margin than the Company's other business segments, lower permanent placement revenues and higher growth of lower-margin services.
Selling, general and administrative expenses were $86.5 million, up from $84.2 million in the first quarter of 2013. The sequential increase in expense was primarily due to higher incentive compensation related to the sequential growth in gross profit and headcount additions to drive growth.
Amortization of intangible assets was $5.3 million, up from $3.9 million in the second quarter of 2012. This increase related to the timing of the acquisition of Apex Systems, which was acquired in the middle of the second quarter of 2012. Consequently, the second quarter of 2012 included amortization expense for only half the quarter.
Interest expense for the quarter was $4.2 million compared with $4.0 million in the second quarter of 2012. Interest expense was comprised of interest on the credit facility of $3.8 million and amortization of capitalized loan costs of $0.4 million.
Write-off of loan costs totaled $15.0 million ($9.2 million, $0.17 per diluted share, after tax) and related to the refinancing of the credit facility in May. This refinancing was treated as an early extinguishment of debt, which resulted in a full write-off of all capitalized loan costs associated with the old facility. Under the new $500 million credit facility, the interest rate on the term B loan was reduced 150 basis points and the interest rate on the revolver and term A loan was reduced 75 to 125 basis points, depending on the leverage ratio.
Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization of identifiable intangible assets plus equity-based compensation expense, impairment charges, acquisition-related costs and fees and expenses of the outside consulting firm assisting with our strategic planning initiatives), was $44.2 million, up from $38.4 million for the second quarter of 2012 on a pro forma basis. The Adjusted EBITDA margin (Adjusted EBITDA as a percentage of revenues) was 10.6 percent.
Income from continuing operations (excluding the write-off of loan costs, acquisition-related costs and strategic planning expenses) was $17.4 million ($0.32 per diluted share) compared with $12.7 million ($0.24 per diluted share) for the second quarter of 2012 on a pro forma basis.
Net income, which is comprised of income from continuing operations and the loss from discontinued operations, was $7.3 million ($0.14 per diluted share) compared with $7.6 million ($0.16 per diluted share) in the second quarter of 2012. Net income for the quarter included (i) a $15.0 million ($9.2 million, $0.17 per diluted share, after tax) write-off of loan costs, (ii) acquisition-related costs and strategic planning expenses totaling $0.7 million ($0.4 million, or $0.01 per diluted share, after tax) and (iii) a $0.5 million loss from discontinued operations.