On Assignment announces 13.4% Q3 revenue increase
Third Quarter Highlights
• Revenues were $477.8 million up 13.4 percent year-over-year and 7.2 percent on a pro forma basis (pro forma assumes the acquisitions of Whitaker Medical, LLC and CyberCoders Holdings, Inc. in December 2013 had occurred at the beginning of 2013).
• Adjusted income from continuing operations (a non-GAAP measure defined below) was $31.1 million ($0.57 per diluted share).
• Income from continuing operations was $22.0 million ($0.41 per diluted share). Income from continuing operations included $1.0 million ($0.6 million net of tax, or $0.01 per diluted 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 $56.1 million.
• Repurchased 2.3 million shares of Common Stock.
• Leverage ratio (total indebtedness to trailing 12 months Adjusted EBITDA) was 2.06 to 1 at September 30, 2014, up slightly from 1.98 to 1 at June 30, 2014 mainly due to stock repurchases during the quarter.
Commenting on the results, Peter Dameris, President and Chief Executive Officer of On Assignment, Inc., said, “We continue to benefit from greater adoption of staff augmentation as an attractive alternative to full-time and outsourcing solutions. Currently enterprise wide IT spending in large customers, specifically in financial services, is more measured than in small to medium sized customers. We believe this difference in spending cycles between the sub-segments of customers in the IT services market will return to the norm in 2015. While our revenues are growing above market, our rate of growth is below our potential and historical performance. In the second half of this year, especially in the fourth quarter, we are aggressively stepping up our hiring of sales and recruiting personnel to accelerate our future growth rates.”
Third Quarter 2014 Financial Results
Revenues for the quarter were $477.8 million, up 13.4 percent year-over-year (7.2 percent on a pro forma basis, which assumes the acquisitions of Whitaker Medical and CyberCoders, had occurred at the beginning of 2013). Our largest segment Apex, which accounts for approximately 64 percent of total revenues, grew 10.5 percent year-over-year.
Gross profit was $155.6 million, up 22.3 percent year-over-year (8.4 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 32.6 percent, up from 30.2 percent in the third quarter of 2013. The year-over-year expansion in gross margin was mainly attributable to a higher mix of permanent placement revenues (5.0 percent of revenues for the quarter compared with 1.7 percent in the third quarter of 2013) and higher contract margins. The higher mix of permanent placement revenues in the quarter was attributable to the inclusion of CyberCoders, which accounted for $17.2 million of the$23.7 million in permanent placement revenues.
Selling, general and administrative (“SG&A”) expenses were $108.7 million (22.8 percent of revenues), up from $86.3 million(20.5 percent of revenues) in the third quarter of 2013 ($98.7 million, or 22.2 percent of revenues all on a pro forma basis). SG&A expenses for the quarter included acquisition, integration and strategic planning expenses of $1.0 million. The increase in our reported SG&A as a percent of revenues was due to the inclusion of CyberCoders, which has higher gross margin and higher SG&A as a percent of revenues than our other business units.
Amortization of intangible assets was $6.0 million, compared with $5.2 million in the third quarter of 2013. The increase related to amortization from the businesses acquired in December 2013.
Interest expense for the quarter was $3.1 million compared with $3.3 million in the third quarter of 2013. Interest expense for the quarter was comprised of interest on the credit facility of $2.8 million and amortization of capitalized loan costs of $0.3 million. The leverage ratio (total indebtedness to trailing 12 months Adjusted EBITDA) at September 30, 2014 was 2.06 to 1, up from 1.98 to 1 at June 30, 2014.
The effective income tax rate for the quarter was 41.7 percent, a slight increase from the 41.6 percent for the full year 2013.
Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization of intangible assets plus equity-based compensation expense, impairment charges, acquisition, integration and strategic planning expenses), was $56.1 million, up from$47.6 million for the third quarter of 2013.
Adjusted income from continuing operations was $31.1 million ($0.57 per diluted share). Income from continuing operations (which includes acquisition, integration and strategic planning expenses of $1.0 million, or $0.6 million net of tax) was $22.0 million ($0.41 per diluted share) compared with $19.5 million ($0.36 per diluted share) for the third quarter of 2013. Net income was $22.0 million ($0.41 per diluted share) compared with $20.2 million ($0.37 per diluted share) in the third quarter of 2013.
Share Repurchase Program
During the quarter, the Company repurchased 2.3 million shares of its common stock under terms of the $100 million repurchase program approved by its Board of Directors in July 2014. The average price of the stock repurchased was $29.46, which includes broker commissions. The amount remaining under the $100 million authorization is approximately $31.8 million.
Financial Estimates for Q4 2014
On Assignment is providing financial estimates for continuing operations for the fourth quarter of 2014. These estimates do not include acquisition, integration, or strategic planning expenses and assume no deterioration in the staffing markets that On Assignment serves.
• Revenues of $467.0 million to $473.0 million
• Gross margin of 31.9 percent to 32.3 percent
• SG&A expense (excludes amortization of intangible assets) of $109.0 to $110.0 million (includes $3.8 million in depreciation and $4.4 million in equity-based compensation expense)
• Amortization of intangible assets of $6.1 million
• Adjusted EBITDA of $48.0 million to $51.0 million
• Effective tax rate of 41.9 percent
• Adjusted income from continuing operations of $26.3 million to $28.1 million
• Adjusted income from continuing operations per diluted share of $0.50 to $0.53
• Income from continuing operations of $17.7 million to $19.5 million
• Income from continuing operations per diluted share of $0.33 to $0.37
• Diluted shares outstanding of 53.1 million
These estimates assume year-over-year revenue growth on a reported basis of approximately 10 percent for Apex, low teens for Oxford (low single digit on a pro forma basis), approximately 20 percent for Physician (low single digits on a pro forma basis) and a high-single digit decline for Life Sciences-Europe. Pro forma growth rates assume the acquisitions of CyberCoders (included in Oxford segment) and Whitaker Medical (included in Physician segment) occurred at the beginning of 2013. The above estimates assume billable days of 60.9 for the quarter, which are 2.8 fewer days than the preceding quarter. Based on the average revenue per billable day in the third quarter of 2014, the effect on revenues for the fourth quarter of fewer billable days than the preceding quarter is approximately $20 million.