Revenues up 15.9 percent
Year-over-YearRevenues, EPS & Adjusted EBITDA above our
Previously Announced Estimates
On Assignment, Inc. (NYSE: ASGN), a leading global provider of
diversified professional staffing solutions, today reported results
for the quarter ended March 31, 2014.
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.
Conference Call
On Assignment will hold a conference call today at 4:30 p.m. EDT
to review its first quarter financial results. The dial-in number
is 800-230-1074 (+1-612-234-9959 for callers outside the United
States) and the conference ID number is 324077. Participants should
dial in ten minutes before the call. A replay of the conference
call will be available beginning today at 6:30 p.m. EDT and ending
at 11:30 p.m. EDT on Wednesday, May 7, 2014. The access number for
the replay is 800-475-6701 (+1-320-365-3844 for callers outside the
United States) and the conference ID number 324077.
This call is being webcast by Thomson/CCBN and can be
accessed via On Assignment's web site at www.onassignment.com. Individual investors can
also listen at Thomson/CCBN's site at www.fulldisclosure.com or by visiting any of the
investor sites in Thomson/CCBN's Individual Investor
Network.
About On Assignment
On Assignment, Inc. (NYSE: ASGN), is a leading global provider
of in-demand, skilled professionals in the growing technology,
healthcare and life sciences sectors, where quality people are the
key to success. The Company goes beyond matching résumés
with job descriptions to match people they know into positions they
understand for temporary, contract-to-hire, and direct hire
assignments. Clients recognize On Assignment for their quality
candidates, quick response, and successful assignments.
Professionals think of On Assignment as career-building partners
with the depth and breadth of experience to help them reach their
goals.
On Assignment was founded in 1985 and went public in 1992. The
Company, which is headquartered in Calabasas, California, operates
through a network of branch offices throughout the United States,
Canada, United Kingdom, Netherlands, Ireland and Belgium. To learn
more, visit http://www.onassignment.com.
Reasons for Presentation of Non-GAAP Financial
Measures
Statements in this release and the accompanying Supplemental
Financial Information include non-GAAP financial measures. Such
information is provided as additional information, not as an
alternative to our consolidated financial statements presented in
accordance with GAAP, and is intended to enhance an overall
understanding of our current financial performance. The
Supplemental Financial Information sets forth financial measures
reviewed by our management to evaluate our operating performance.
Such measures also are used to determine a portion of the
compensation for some of our executives and employees. We believe
the non-GAAP financial measures provide useful information to
management, investors and prospective investors by excluding
certain charges and other amounts that we believe are not
indicative of our core operating results. These non-GAAP measures
are included to provide management, our investors and prospective
investors with an alternative method for assessing our operating
results in a manner that is focused on the performance of our
ongoing operations and to provide a more consistent basis for
comparison between quarters. One of the non-GAAP financial measures
presented is EBITDA (earnings before interest, taxes, depreciation,
and amortization of identifiable intangible assets), other terms
include Adjusted EBITDA (EBITDA plus equity-based compensation
expense, impairment charges, write-off of loan fees and
acquisition, integration and strategic planning expenses) and
Non-GAAP Income from Continuing Operations (Income from continuing
operations, plus deferred financing fees written-off and
acquisition, integration and strategic planning expenses, net of
tax) and Adjusted Income from Continuing Operations and related per
share amounts. These terms might not be calculated in the same
manner as, and thus might not be comparable to, similarly titled
measures reported by other companies. The financial statement
tables that accompany this press release include a reconciliation
of each non-GAAP financial measure to the most directly comparable
GAAP financial measure.
Safe Harbor
Certain statements made in this news release are
“forward-looking statements” within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended, and involve a
high degree of risk and uncertainty. Forward-looking statements
include statements regarding the Company's anticipated financial
and operating performance in 2014. All statements in this release,
other than those setting forth strictly historical information, are
forward-looking statements. Forward-looking statements are not
guarantees of future performance, and actual results might differ
materially. In particular, the Company makes no assurances that the
estimates of revenues, gross margin, SG&A, Adjusted EBITDA,
income from continuing operations, adjusted income from continuing
operations, earnings per share or earnings per diluted share set
forth above will be achieved. Factors that could cause or
contribute to such differences include actual demand for our
services, our ability to attract, train and retain qualified
staffing consultants, our ability to remain competitive in
obtaining and retaining temporary staffing clients, the
availability of qualified temporary professionals, management of
our growth, continued performance of our enterprise-wide
information systems, and other risks detailed from time to time in
our reports filed with the Securities and Exchange Commission,
including our Annual Report on Form 10-K for the year ended
December 31, 2013, as filed with the SEC on March 3, 2014. We
specifically disclaim any intention or duty to update any
forward-looking statements contained in this news release.
SUMMARY CONSOLIDATED STATEMENTS OF
OPERATIONS (unaudited)
(In thousands, except per share
amounts)
Three Months Ended March 31, December
31, 2014
2013 (1)
2013 Revenues $ 439,274 $ 379,044 $ 423,598 Cost of
services 301,686 268,933 293,845 Gross profit
137,588 110,111 129,753 Selling, general and administrative
expenses 104,134 81,877 90,199 Amortization of intangible assets
6,172 5,379 5,898 Operating income 27,282
22,855 33,656 Interest expense, net (3,328 ) (5,096 ) (3,429
) Income before income taxes 23,954 17,759 30,227 Provision for
income taxes 9,906 7,543 12,802 Income from
continuing operations 14,048 10,216 17,425 Gain on sale of
discontinued operations, net of tax — 14,412 16,428 Income (loss)
from discontinued operations, net of tax (131 ) (15 ) (1,443
) Net income $ 13,917 $ 24,613 $ 32,410
Basic earnings per common share: Income from continuing operations
$ 0.26 $ 0.19 $ 0.32 Income (loss) from discontinued operations —
0.27 0.28 $ 0.26 $ 0.46 $ 0.60
Diluted earnings per common share: Income from
continuing operations $ 0.26 $ 0.19 $ 0.32 Income (loss) from
discontinued operations (0.01 ) 0.27 0.27 $ 0.25
$ 0.46 $ 0.59 Number of shares and
share equivalents used to calculate earnings per share: Basic
54,104 53,046 53,868 Diluted 54,975
54,036 54,880
______
(1)
Amounts differ from the previously reported numbers on our
Form 10-Q for the period ended March 31, 2013, due to the
retrospective presentation of discontinued operations related to
the sale of Allied Healthcare in December 2013.
SUPPLEMENTAL SEGMENT FINANCIAL
INFORMATION(1) (Unaudited)
(In thousands)
Three Months Ended March 31, December 31, 2014
2013 (2)
2013 Revenues: Apex $ 278,408 $ 239,765 $ 281,032 Oxford 117,500
102,688 104,416 Physician 31,791 26,302 26,836 Other 11,575
10,289 11,314 $ 439,274 $ 379,044 $ 423,598
Gross profit: Apex $ 75,506 $ 63,981 $ 78,864 Oxford 49,026
34,815 38,586 Physician 8,838 7,483 8,109 Other 4,218 3,832
4,194 $ 137,588 $ 110,111 $ 129,753
______
(1)
The segments reported above reflect the
new segment configuration resulting from the operational changes
that occurred in the first quarter of 2014. As a result of this
realignment, Apex now includes Lab Support US (that was formerly
part of our Life Sciences Segment), Oxford now includes our
Clinical Research division (that was formerly part of our Life
Sciences Segment) and the European Life Sciences unit (that was
formerly part of our Life Sciences Segment) is now reported as
Other. In addition, as reported in the fourth quarter of 2013,
Oxford also includes our Health Information Management unit and
CyberCoders. Our quarterly and full year historical segment data
for 2012 and 2013 have been restated to conform to this
configuration, which are included in an Appendix to our Analysts’
Day presentation that is included on our website.
(2)
Amounts differ from the previously
reported numbers on our Form 10-Q for the period ended March 31,
2013, due to the retrospective presentation of discontinued
operations related to the sale of Allied Healthcare in December
2013.
SELECTED CASH FLOW INFORMATION
(Unaudited)
(In thousands)
Three Months Ended March 31, December 31, 2014
2013 2013 Cash provided by (used in) operations $
(4,321
) $ 3,575 $ 36,576 Capital expenditures $ 4,020 $ 2,785 $ 4,238
SELECTED CONSOLIDATED BALANCE SHEET
DATA (Unaudited)
(In thousands)
March 31, December 31, 2014 2013 Cash and cash
equivalents $ 23,394 $ 37,350 Accounts receivable, net 277,553
262,224 Goodwill and intangible assets, net 857,507 863,403 Total
assets 1,254,404 1,261,194 Current portion of long-term debt 18,250
10,000 Total current liabilities 157,168 169,021 Working capital
190,463 180,853 Long-term debt 375,563 389,813 Other long-term
liabilities 61,159 62,227 Stockholders’ equity 660,514 640,133
RECONCILIATION OF GAAP INCOME FROM
CONTINUING OPERATIONS AND EARNINGS PER SHARE TO NON-GAAP ADJUSTED
EBITDA AND ADJUSTED EBITDA PER DILUTED SHARE
(Unaudited)
(In thousands, except per share
amounts)
Three Months Ended March 31, 2014
2013 (1)
December 31, 2013 Net income $ 13,917 $ 0.25 $ 24,613
$ 0.46 $ 32,410 $ 0.59 Income (loss) from
discontinued operations, net of tax (131 ) (0.01 ) 14,397
0.27 14,985 0.27 Income from continuing operations
14,048 0.26 10,216 0.19 17,425 0.32 Interest expense, net 3,328
0.06 5,096 0.10 3,429 0.06 Provision for income taxes 9,906 0.18
7,543 0.14 12,802 0.23 Depreciation 2,787 0.05 1,830 0.03 2,301
0.04 Amortization of intangibles 6,172 0.11 5,379
0.10 5,898 0.11 EBITDA 36,241 0.66 30,064 0.56
41,855 0.76 Equity-based compensation 3,190 0.06 2,522 0.04 3,923
0.07 Acquisition, integration and strategic planning expenses 775
0.01 618 0.01 2,623 0.05
Adjusted EBITDA $ 40,206 $ 0.73 $ 33,204 $
0.61 $ 48,401 $ 0.88 Weighted average common
and common equivalent shares outstanding (diluted) 54,975
54,036 54,880
______
(1)
Amounts differ from the previously reported numbers on our
Form 10-Q for the period ended March 31, 2013, due to the
retrospective presentation of discontinued operations related to
the sale of Allied Healthcare in December 2013.
RECONCILIATION OF GAAP INCOME AND EPS
TO NON-GAAP INCOME AND EPS (Unaudited)
(In thousands, except per share
amounts)
Three Months Ended March 31, December 31, 2014
2013 (1)
2013 Net income $ 13,917 $ 0.25 $ 24,613 $
0.46 $ 32,410 $ 0.59 Income (loss) from discontinued
operations, net of tax (131 ) (0.01 ) 14,397 0.27
14,985 0.27 Income from continuing operations 14,048 0.26
10,216 0.19 17,425 0.32 Acquisition, integration and strategic
planning expenses, net of income taxes 455 — 374
0.01 1,542 0.03 Non-GAAP income from
continuing operations $ 14,503 $ 0.26 $ 10,590
$ 0.20 $ 18,967 $ 0.35 Weighted average common
and common equivalent shares outstanding (diluted) 54,975
54,036 54,880
_____
(1)
Amounts differ from the previously reported numbers on our
Form 10-Q for the period ended March 31, 2013, due to the
retrospective presentation of discontinued operations related to
the sale of Allied Healthcare in December 2013.
CALCULATION OF ADJUSTED EARNINGS PER
SHARE (Unaudited)
(In thousands, except per share
amounts)
Three Months Ended March 31, 2014 2013
Non-GAAP income from continuing operations (1) $ 14,503 $ 10,590
Adjustments: Amortization of intangible assets (2) 6,172 5,379 Cash
tax savings on indefinite-lived intangible assets (3) 4,025 3,850
Excess of capital expenditures over depreciation, net of tax (4)
(1,025 ) (1,025 ) Income taxes on amortization for financial
reporting purposes not deductible for income tax purposes (5) (531
) — Income from Continuing Operations - As Adjusted $ 23,144
$ 18,794 Earnings per Diluted Share from
Continuing Operations--
As Adjusted
$ 0.42 $ 0.35 Weighted average common and
common equivalent shares outstanding (diluted) 54,975 54,036
______
(1)
Non-GAAP income from continuing operations as calculated on
preceding page. Non-GAAP income from continuing operations excludes
acquisition, integration and strategic planning expenses.
(2)
Amortization of identifiable intangible assets of acquired
businesses.
(3)
Income tax benefit (using 39 percent marginal tax rate) from
amortization for income tax purposes of certain indefinite-lived
intangible assets (goodwill and trademarks), on acquisitions in
which the Company received a step-up tax basis. For income tax
purposes, these assets are amortized on a straight-line basis over
15 years. For financial reporting purposes, these assets are not
amortized and a deferred tax provision is recorded that fully
offsets the cash tax benefit in the determination of net income.
(4)
Excess capital expenditures over depreciation is equal to
one-quarter of the estimated full year difference between capital
expenditures less depreciation, tax affected using an estimated
marginal combined federal and state tax rate of 39 percent.
(5)
Income taxes (assuming a 39 percent marginal rate) on the portion
of amortization of identifiable intangible assets, which are not
deductible for income tax purposes (mainly amortization associated
with the CyberCoders acquisition that the Company was not able to
step-up the tax basis in those acquired assets for tax purposes).
SUPPLEMENTAL FINANCIAL AND OPERATING
DATA(1) (Unaudited)
(Dollars in thousands)
Apex Oxford Physician Other
Consolidated Revenues: Q1 2014 $ 278,408 $ 117,500 $ 31,791 $
11,575 $ 439,274 Q4 2013 $ 281,032 $ 104,416 $ 26,836 $ 11,314 $
423,598 % Sequential change (0.9 )% 12.5 % 18.5 % 2.3 % 3.7 % Q1
2013 $ 239,765 $ 102,688 $ 26,302 $ 10,289 $ 379,044 %
Year-over-year change 16.1 % 14.4 % 20.9 % 12.5 % 15.9 %
Direct hire and conversion revenues: Q1 2014 $ 3,682 $ 15,027 $ 741
$ 862 $ 20,312 Q4 2013 $ 3,221 $ 3,892 $ 746 $ 838 $ 8,697 Q1 2013
$ 3,229 $ 1,903 $ 1,019 $ 1,027 $ 7,178 Gross margins: Q1
2014 27.1 % 41.7 % 27.8 % 36.4 % 31.3 % Q4 2013 28.1 % 37.0 % 30.2
% 37.1 % 30.6 % Q1 2013 26.7 % 33.9 % 28.5 % 37.2 % 29.0 %
Average number of staffing consultants: Q1 2014 818 796 148 53
1,815 Q4 2013 805 660 106 59 1,630 Q1 2013 772 565 107 59 1,503
Average number of customers: Q1 2014 1,375 849 269 136 2,629
Q4 2013 1,381 892 214 156 2,643 Q1 2013 1,312 747 173 144 2,376
Top 10 customers as a percentage of revenue: Q1 2014 30.6 %
13.8 % 19.4 % 56.1 % 19.4 % Q4 2013 31.1 % 14.6 % 20.9 % 54.3 %
20.6 % Q1 2013 29.7 % 15.5 % 21.6 % 54.4 % 19.1 % Average
bill rate: Q1 2014 $ 53.89 $ 110.55 $ 173.29 $ 53.66 $ 64.87 Q4
2013 $ 53.41 $ 113.75 $ 186.44 $ 51.91 $ 64.11 Q1 2013 $ 53.59 $
117.67 $ 185.92 $ 53.95 $ 65.89 Gross profit per staffing
consultant: Q1 2014 $ 92,000 $ 62,000 $ 60,000 $ 80,000 $ 76,000 Q4
2013 $ 98,000 $ 58,000 $ 77,000 $ 71,000 $ 80,000 Q1 2013 $ 83,000
$ 62,000 $ 70,000 $ 65,000 $ 73,000
_____
(1)
The segments reported above reflect the new segment
configuration resulting from the operational changes that occurred
in the first quarter of 2014. As a result of this realignment, Apex
now includes Lab Support US (that was formerly part of our Life
Sciences Segment), Oxford now includes our Clinical Research
division (that was formerly part of our Life Sciences Segment) and
the European Life Sciences unit (that was formerly part of our Life
Sciences Segment) is now reported as Other. In addition, as
reported in the fourth quarter of 2013, Oxford also includes our
Health Information Management unit and CyberCoders. Our quarterly
and full year historical segment data for 2012 and 2013 have been
restated to conform to this configuration, which are included in an
Appendix to our Analysts’ Day presentation that is included on our
website.
SUPPLEMENTAL FINANCIAL INFORMATION –
KEY METRICS (Unaudited)
Three Months Ended March 31,2014 December 31,2013
Percentage of revenues: Top ten clients 19.4 % 20.6 % Direct
hire/conversion 4.6 % 2.1 % Bill rate: % Sequential change
1.2 % (1.8 %) % Year-over-year change (1.5 %) (1.9 %)
Bill/Pay spread: % Sequential change 0.8 % (1.3 %) % Year-over-year
change (1.0 %) (1.6 %) Average headcount: Contract
professionals (CP) 12,454 12,363 Staffing consultants (SC) 1,815
1,630 Productivity: Gross profit per SC $ 76,000 $ 80,000
On Assignment, Inc.Ed PierceChief Financial Officer(818)
878-7900
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