On Assignment reports Q1 revenues up over 15% YOY
First Quarter Highlights
• Revenues were $439.3 million, up 15.9 percent year-over-year and 9.8 percent on a pro forma basis (pro forma assumes the acquisitions of Whitaker Medical, LLC and CyberCoders Holdings, Inc. in December 2013 occurred at the beginning of 2013).
• Adjusted Income from continuing operations (a non-GAAP measure defined below) was $23.1 million ($0.42 per diluted share).
• Income from continuing operations was $14.0 million ($0.26 per diluted share). Income from continuing operations included $0.8 million ($0.5 million net of income taxes, or $0.01 per share) in acquisition, integration and strategic planning expenses, which were not included in our previously announced estimates.
• Adjusted EBITDA (a non-GAAP measure defined below) was $40.2 million.
• Amended our credit agreement on February 28, 2014, which results in an annual interest expense savings of approximately $1.0 million.
• Leverage ratio (total indebtedness to trailing twelve months Adjusted EBITDA) was 2.12 to 1 at March 31, 2014, down from 2.2 to 1 at December 31, 2013.
Commenting on the results, Peter Dameris, President and Chief Executive Officer of On Assignment, Inc., said, “We reported strong financial results for the quarter despite the effects of the inclement weather. Our IT segments continue to report strong performance led by our Apex Segment, which grew 16 percent year-over-year. Demand for our IT services continues to be robust and we are well positioned to expand our market share.”
“During the quarter, we completed our five-year strategic plan, which we reviewed at our analysts’ day presentation last month. We have already realigned our operating segments, which we believe will enhance our ability to improve our growth prospects and our operating efficiency.”
First Quarter 2014 Results
Revenues for the quarter were $439.3 million, up 15.9 percent year-over-year (9.8 percent on a pro forma basis, which assumes the acquisitions of Whitaker Medical and CyberCoders had occurred at the beginning of 2013). Our two largest segments (Apex and Oxford) grew 15.6 percent year-over-year and 10.8 percent on a pro forma basis. These two segments accounted for 90 percent of consolidated revenues.
Gross profit was $137.6 million, up 25.0 percent year-over-year (10.2 percent on a pro forma basis). This improvement was primarily due to growth in revenues (which included the results of the businesses acquired in December 2013) and expansion in gross margin. Gross margin for the quarter was 31.3 percent, up from 29.0 percent in the first quarter of 2013 and up from 30.6 percent in the fourth quarter of 2013. The year-over-year expansion in gross margin was mainly attributable to a higher mix of permanent placement revenues (4.6 percent of revenues for the quarter compared with 1.9 percent in the first quarter of 2013) and slightly higher contract margins. The higher mix of permanent placement revenues in the quarter was attributable to the inclusion of CyberCoders, which accounted for $13.3 million of the $20.3 million in permanent placement revenues.
Selling, general and administrative (“SG&A”) expenses were $104.1 million (23.7 percent of revenues), up from $81.9 million(21.6 percent of revenues) in the first quarter of 2013 ($93.3 million, or 23.3 percent of revenues all on a pro forma basis). SG&A expenses for the quarter included acquisition, integration and strategic planning expenses of $0.8 million. The increase in the SG&A expense margin was primarily due to the inclusion of CyberCoders, which has higher gross and expense margins than our other business units.
Amortization of intangible assets was $6.2 million, compared with $5.4 million in the first quarter of 2013. The increase related to amortization from the businesses acquired in December 2013.
Interest expense for the quarter was $3.3 million compared with $5.1 million in the first quarter of 2013. Interest expense for the quarter was comprised of interest on the credit facility of $3.0 million and amortization of capitalized loan costs of $0.3 million. The leverage ratio (total indebtedness to trailing twelve months Adjusted EBITDA) at March 31, 2014 was 2.12 to 1, down from 2.2 to 1 at December 31, 2013. In February 2014, we amended our credit facility resulting in an increase in borrowings under our term A loan facility of $82.5 million and a pay down on our term B loan facility by the same amount. This amendment results in an annual interest savings of approximately $1.0 million.
The effective income tax rate for the quarter was 41.4 percent, a slight improvement from the 41.6 percent for the full year 2013.
Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization of identifiable intangible assets plus equity-based compensation expense and acquisition, integration and strategic planning expenses), was $40.2 million, up from $33.2 million for the first quarter of 2013. Adjusted EBITDA for the first quarter of 2013 included an $0.8 million benefit related to a reduction in an earn-out obligation.
Adjusted income from continuing operations was $23.1 million ($0.42 per diluted share). Income from continuing operations (which includes acquisition, integration and strategic planning expenses of $0.8 million, or $0.5 million net of income taxes) was$14.0 million ($0.26 per diluted share) compared with $10.2 million ($0.19 per diluted share) for the first quarter of 2013.
Net income, which is comprised of (i) income from continuing operations of $14.0 million and (ii) the loss from discontinued operations of $0.1 million, totaled $13.9 million ($0.25 per diluted share) compared with $24.6 million ($0.46 per diluted share) in the first quarter of 2013. Net income for 2013 included a $14.4 million gain on the sale of our Nurse Travel division.
Financial Estimates for Q2 2014
On Assignment is providing below financial estimates from continuing operations for the second quarter of 2014. These estimates do not include acquisition or integration-related costs and expenses and assume no deterioration in the staffing markets that On Assignment serves.
• Revenues of $469.0 million to $472.0 million
• Gross Margin of 31.9 percent to 32.1 percent
• SG&A Expense (excludes amortization of intangible assets) of $106.7 to $107.7 million (includes $3.2 million in depreciation and $4.4 million in equity-based compensation expense)
• Amortization of Intangible Assets of $6.2 million
• Adjusted EBITDA of $50.5 million to $52.0 million
• Effective Tax Rate of 41.5 percent
• Adjusted Income from Continuing Operations of $28.2 million to $29.1 million
• Adjusted Income from Continuing Operations per diluted share of $0.51 to $0.52
• Income from Continuing Operations of $19.6 million to $20.5 million
• Income from Continuing Operations per diluted share of $0.35 to $0.37
• Diluted shares outstanding of 55.5 million
These estimates assume year-over-year revenue growth in the mid-teens for Apex and Oxford, over 20 percent for Physician and low teens for Other (our Life Sciences European division). On a pro forma basis, which assumes the acquisitions of Whitaker Medical and CyberCoders occurred at the beginning of 2013, the estimated growth rate for Oxford is low single digits and for Physician is a low single digit decline.