On Assignment reports Q1 2015 adjusted EBITDA of $38.7m
Operating results of the Physician Segment, which was sold effective February 1, 2015, are included in discontinued operations for all periods presented.
First Quarter Highlights
• Revenues were $430.0 million up 5.7 percent year-over-year (6.7 percent on a constant currency basis). Adverse effect of inclement weather on revenues was approximately $4.5 to $5.5 million ($2.0 million higher than previous estimates) and foreign currency exchange rates adversely affected revenues $0.9 million more than expected.
• Adjusted income from continuing operations (a non-GAAP measure defined below) was $21.6 million ($0.41 per diluted share).
• Excluding the $1.3 million ($0.8 million after income taxes) in acquisition, integration and strategic planning expenses incurred during the quarter, which was not included in our earnings estimates, income from continuing operations was$13.8 million ($0.26 per diluted share).
• Adjusted EBITDA (a non-GAAP measure defined below) was $38.7 million.
• Closed the sale of the Physician Segment for $123.0 million ($25.7 million gain, net of tax).]
Operating results of this segment are included in Discontinued Operations for all periods presented.
• Repurchased 43,000 shares of Common Stock at average price per share of $38.26. (Total share repurchases since June 30, 2014 were 3.4 million at an average price of $29.89.)
• Leverage ratio (total indebtedness to trailing 12 months Adjusted EBITDA) was 1.77 to 1 at March 31, 2015, down from 2.06 to 1 at December 31, 2014.
Commenting on the results, Peter Dameris, president and chief executive officer of On Assignment, Inc., said, "Despite lower than estimated revenues, our Adjusted Earnings and Adjusted EBITDA were within our financial estimates for the quarter. Our revenues for the quarter were adversely effected more than expected by the inclement weather in March and the further strengthening of the US dollar relative to the Euro, which combined caused an unfavorable revenue variance of approximately$3.0 million. Our Oxford Segment for the quarter grew 10.4 percent on a constant currency basis, its highest quarterly growth rate since 2013. Our Apex Segment, grew 5.7 percent, and continues to be hampered by spending at certain of its large financial services and government customers.
During the quarter, we believe we made important progress in expanding our internal staff of sales consultants and recruiters and positioning ourselves to continue our growth through strategic acquisitions. The average number of sales consultants and recruiters during the quarter was 1,887, which is up 14.6 percent year-over-year. We expect to see higher revenues from this investment beginning in the third quarter as the typical ramp up time for new staff is 9 to 12 months."
First Quarter 2015 Financial Results
Revenues for the quarter were $430.0 million, up 5.7 percent year-over-year (6.7 percent on a constant currency basis). Revenues for the quarter were adversely affected $4.5 to $5.5 million from inclemen
t weather. Foreign currency exchange adversely affected revenues $4.0 million year-over-year.
Our largest segment, Apex, which accounts for approximately 68.4 percent of total revenues, grew 5.7 percent year-over-year and our second largest segment, Oxford, which accounts for approximately 29.6 percent of total revenues, grew 8.5 percent year-over-year (10.4 percent on a constant currency basis).
Gross profit was $135.9 million, up 6.0 percent year-over-year. This improvement was primarily due to growth in revenues and expansion in gross margin. Gross margin for the quarter was 31.6 percent, up from 31.5 percent in the first quarter of 2014. The year-over-year expansion in gross margin related to the higher mix of direct hire and conversion revenues, which were 5.6 percent of total revenues, up from 4.7 percent in the first quarter of 2014.
Selling, general and administrative (“SG&A”) expenses were $105.9 million (24.6 percent of revenues), up from $96.1 million(23.6 percent of revenues) in the first quarter of 2014. SG&A expenses for the quarter included acquisition, integration and strategic planning expenses of $1.3 million and approximately $2.0 million related to our accelerated hiring of sales consultants and recruiters.
Amortization of intangible assets was $4.9 million, compared with $5.5 million in the first quarter of 2014.
Interest expense for the quarter was $3.1 million compared with $3.3 million in the first quarter of 2014. Interest expense for the quarter was comprised of interest on the credit facility of $2.7 million and amortization of capitalized loan costs of $0.4 million. The leverage ratio (total indebtedness to trailing 12 months Adjusted EBITDA) at March 31, 2015 was 1.77 to 1, down from 2.06 to 1 atDecember 31, 2014.
The effective income tax rate for the quarter was 40.8 percent, a slight decrease from the 41.2 percent for the full year 2014.
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 $38.7 million, up from$38.2 million in the first quarter of 2014.
Adjusted income from continuing operations was $21.6 million ($0.41 per diluted share). Income from continuing operations (which includes acquisition, integration and strategic planning expenses of $1.3 million, or $0.8 million net of tax) was $13.0 million ($0.25 per diluted share) compared with $13.6 million ($0.25 per diluted share) in the first quarter of 2014.
Net income was $39.1 million ($0.75 per diluted share) compared with $13.9 million ($0.25 per diluted share) in the first quarter of 2014. Net income included income from discontinued operations of $26.1 million ($0.50 per diluted share), mainly related to the gain on the sale of the Physician Segment.
Sale of Physician Segment
On February 1, 2015 the Company completed the sale of its Physician Segment for $123.0 million and recognized a gain of $25.7 million, net of tax. After tax proceeds from the sale were approximately $108 million.
Share Repurchase Program
During the quarter, the Company repurchased 43,000 shares of its common stock. Since June 30, 2014, the Company has repurchased approximately 3.4 million shares at an average price per share of $29.89. The amount remaining under the current board-approved share repurchase program is approximately $98.4 million.
Financial Estimates for Q2 2015
On Assignment is providing financial estimates for continuing operations for the second 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. These estimates also assume no further deterioration in foreign exchange rates.
• Revenues of $454.0 million to $459.0 million
• Gross margin of 32.5 percent to 33.0 percent
• SG&A expense (excludes amortization of intangible assets) of $107.0 to $108.0 million (includes $3.7 million in depreciation and $5.0 million in equity-based compensation expense)
• Amortization of intangible assets of $5.1 million
• Adjusted EBITDA of $49.0 million to $52.0 million
• Effective tax rate of 40.0 percent
• Adjusted income from continuing operations of $27.5 million to $29.3 million
• Adjusted income from continuing operations per diluted share of $0.53 to $0.56
• Income from continuing operations of $19.5 million to $21.3 million
• Income from continuing operations per diluted share of $0.37 to $0.41
• Diluted shares outstanding of 52.1 million
The above estimates assume billable days of 63.5 for the quarter, which are 1.5 days more than the preceding quarter and 0.3 fewer days than the second quarter of 2014. The estimates also assume a foreign currency exchange rate of 1.08 (US dollar to the Euro).
The mid-point of the revenue range above implies year-over-year growth of 5.1 percent (6.4 percent on a constant currency basis). The revenue estimates assume mid-single digit growth for Apex, mid-to-high single-digit growth at Oxford and a year-over-year decline for Life Sciences Europe on a constant currency basis.