On Assignment reports Q4 and full year 2014 results
Fourth Quarter Highlights
• Revenues were $475.8 million, up 12.5 percent year-over-year and 8.3 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 $31.4 million ($0.60 per diluted share).
• Income from continuing operations was $21.8 million ($0.41 per diluted share). Income from continuing operations included $1.8 million ($1.1 million net of tax, or $0.02 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 $54.7 million.
• Repurchased 1.0 million shares of common stock at an average price of $30.50 per share during the quarter and for the full year repurchased 3.4 million shares at an average price of $29.78.
• On February 1, 2015, completed the sale of the Physician Segment for $123.0 million (net proceeds of approximately$102.0 to $105.0 million after income taxes and transaction expenses).
• Leverage ratio (total indebtedness to trailing 12 months Adjusted EBITDA) was 2.06 to 1 at December 31, 2014, unchanged from September 30, 2014 despite the stock repurchases during the quarter.
• Closed European retained search unit in December 2014. Consolidated results for all periods presented have been restated to exclude operations of this unit from continuing operations and report them in discontinued operations. Revenues and EBITDA from this unit in 2014 were approximately $2.0 million and negative $1.3 million, respectively.
Commenting on the results, Peter Dameris, President and Chief Executive Officer of On Assignment, Inc., said, “We are pleased with our solid operating performance for the quarter in which we exceeded our financial estimates for revenues, Adjusted EBITDA and Adjusted EPS. Operating performance of our operating units was in line with or above expectations. Furthermore, we believe the actions that we took in 2014 of divesting our remaining healthcare assets, the repurchase of $100 million of our common stock, completing the realignment of our operating units and our accelerated hiring of additional sales consultants and recruiters have positioned us to perform well, both operationally and financially, in 2015 and beyond.”
Fourth Quarter 2014 Financial Results
Revenues for the quarter were $475.8 million, up 12.5 percent year-over-year (8.3 percent on a pro forma basis (pro forma assumes the acquisitions of CyberCoders and Whitaker Medical had occurred at the beginning of 2013).
Our largest segment Apex, which accounts for approximately 64.7 percent of total revenues, grew 9.5 percent year-over-year. Our Oxford Segment, which accounts for approximately 26.0 percent of total revenues, grew 18.6 percent year-over-year and 6.7 percent on a pro forma basis. Our Physician Segment, which accounted for 7.3 percent of total revenues, grew 29.6 percent and 9.6 percent on a pro forma basis.
Gross profit was $153.5 million, up 18.9 percent year-over-year (9.7 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 32.3 percent, up from 30.5 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 (4.4 percent of revenues for the quarter compared with 1.9 percent in the fourth 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 $15.0 millionof the $21.1 million in permanent placement revenues.
Selling, general and administrative (“SG&A”) expenses were $108.6 million (22.8 percent of revenues), up from $89.4 million(21.1 percent of revenues) in the fourth quarter of 2013 ($97.2 million, or 22.1 percent of revenues on a pro forma basis). SG&A expenses for the quarter included acquisition, integration and strategic planning expenses of $1.8 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), and higher branch expenses related to the acceleration in hiring of additional sales consultants and recruiters.
Amortization of intangible assets was $6.1 million, compared with $5.9 million in the fourth quarter of 2013. The increase related to amortization from the businesses acquired in December 2013.
Interest expense for the quarter was $3.2 million compared with $3.4 million in the fourth quarter of 2013. Interest expense for the quarter was comprised of interest on the credit facility of $2.9 million and amortization of capitalized loan costs of $0.3 million. The leverage ratio (total indebtedness to trailing 12 months Adjusted EBITDA) at December 31, 2014 was 2.06 to 1, unchanged fromSeptember 30, 2014.
The effective income tax rate for the quarter was 39.0 percent. The effective tax rate for the full year was 40.8 percent, down from 41.5 percent for the full year 2013. The improvement in the effective tax rate relates to higher growth of pre-tax income relative to growth of permanent differences between financial and tax income.
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 $54.7 million, up from$48.5 million for the fourth quarter of 2013.
Adjusted income from continuing operations was $31.4 million ($0.60 per diluted share). Income from continuing operations (which includes acquisition, integration and strategic planning expenses of $1.8 million, or $1.1 million net of tax) was $21.8 million ($0.41 per diluted share) compared with $17.5 million ($0.32 per diluted share) for the fourth quarter of 2013.
Net income was $20.5 million ($0.39 per diluted share) compared with $32.4 million ($0.59 per diluted share) in the fourth quarter of 2013. Net income for the fourth quarter of 2013 included a gain of $16.4 million ($0.30 per diluted share) related to the sale of the Allied Healthcare unit.
Sale of Physician Segment
Effective February 1, 2015, the Company completed the sale of its Physician Segment for $123 million in cash. Net proceeds from the sale (after income taxes and transaction expenses) are estimated to be approximately $102.0 to $105.0 million. Revenues from the Physician Segment were approximately $135.2 million and EBITDA was approximately $12.9 million for 2014.
In this release and the Company’s Annual Report on Form 10-K for the year ending December 31, 2014, which is expected to be filed with the Securities and Exchange Commission (“SEC”) on or before March 2, 2015, this sale is treated as a subsequent event and operating results of the segment are included in the Company’s consolidated results of operations from continuing operations. In subsequent Company releases and filings with the SEC, operating results of this segment will be reported as discontinued operations on a retrospective basis for all periods presented. Included in this release is quarterly historical financial information for 2013 and 2014 that has been restated to report operating results of the Physician Segment as discontinued operations.
Share Repurchase Programs
During the quarter, the Company repurchased 1.0 million share of its common stock at an average price per share of $30.50, thus completing the $100 million repurchase program approved by its Board of Directors in July 2014. During 2014, the Company repurchased 3.4 million shares of its common stock at an average price of $29.78.
On January 16, 2015, the Company’s Board of Directors authorized a new $100 million share repurchase program effective for two years. Under this new program, the Company may begin share repurchases on February 23, 2015.
Financial Estimates for Q1 2015
On Assignment is providing financial estimates for continuing operations for the first quarter of 2015. 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 $432.0 million to $439.0 million
• Gross margin of 31.5 percent to 31.9 percent
• SG&A expenses (excludes amortization of intangible assets) of $105.5 to $107.0 million (includes $3.5 million in depreciation and $3.9 million in equity-based compensation expense)
• Amortization of intangible assets of $4.9 million
• Adjusted EBITDA of $38.0 million to $40.5 million
• Effective tax rate of 40.0 percent
• Adjusted income from continuing operations of $21.5 million to $23.0 million
• Adjusted income from continuing operations per diluted share of $0.41 to $0.44
• Income from continuing operations of $13.8 million to $15.3 million
• Income from continuing operations per diluted share of $0.26 to $0.29
• Diluted shares outstanding of 52.2 million
The revenues estimates include approximately $2.5 to $3.5 million for the adverse effect of the inclement weather in the first quarter. The above estimates also include the effects of the payroll tax reset, which occurs at the beginning of every year. This reset results in an estimated sequential increase in cost of sales of $4.0 to $4.5 million and a sequential increase in SG&A expenses of approximately $3.0 million.