Preliminary estimates for GDP growth in the third quarter suggest that conditions have improved relative to the tepid pace of the first half of 2016. On the other hand, Staffing Industry Analysts’ monthly Pulse Survey for September found IT staffing firms reporting bearish signals including an increase in sales difficulty, decrease in recruiting difficulty and net decline in the proportion experiencing new order growth. As you’ll read below, these countervailing indicators are a microcosm of the conflicting demand trends expressed by IT staffing firms in their 3Q16 financial reports.
Once again this quarter, On Assignment (NYSE: ASGN) reassured investors that it hasn’t seen any notable change in client demand for its staffing services. Its Apex Systems unit, which represents the bulk of the company’s overall IT staffing business, grew sales 12.1% year over year to approximately $350.5 million. Revenue was up in six of the seven industry verticals they service, led by double-digit growth in aerospace/defense, financial services and healthcare, with only the technology vertical showing a year-over-year decline.
Revenue grew at a more modest rate of 5.8% year over year, to $120.4 million, in On Assignment’s Oxford core division, which excludes the CyberCoders direct hire and Life Sciences Europe businesses. While strength was cited in work involving implementation of electronic medical records, also known as EMR, management reported that the company’s traditional enterprise resource planning, also known as ERP, practice has seen its growth flatten in 2016 due to the conversion to cloud-based offerings. Direct hire remains weak, declining 2.2% on the quarter, and comparisons for the next report become more difficult as the perm business was up more than 30% year over year in the fourth quarter of 2015.
For the fourth quarter of 2016, On Assignment projects companywide revenue to be between $608 million and $618 million. Adjusting for the 1.6 fewer estimated billing days as compared to the prior-year period, this implies year-over-year growth of 8% to 10%.
The pattern of slowing growth seen in recent quarters turned to contraction for Robert Half’s (NYSE: RHI) Technology division, which reported a revenue decrease of 1.4% year over year, adjusted for same billing days and constant currency, to $167.6 million. On the analyst call, management said that overall demand for its staffing and consulting services declined throughout the quarter, and was down 1.5% in the first two weeks of October versus the same period in 2015. Software development work, which had been the division’s biggest growth driver in recent years, has shifted to a headwind as clients have grown more selective in candidate evaluation, exacerbating the effects of an already shallow talent pool.
In its IT staffing-focused Tech Flex division, Kforce (NASD: KFRC) reported that revenue fell 2.7% year over year in third quarter 2016, to $220.4 million. Direct hire revenue related to IT skill sets suffered a steeper year-over-year decline of 10.2%. In contrast to the pattern called out in RHI’s management commentary, however, Kforce said that its demand indicators strengthened late in the quarter into early October, and expects a return to tech flex year-over-year revenue growth in the fourth quarter.
Computer Task Group (NASD: CTG) continues to suffer from heavy exposure to its largest client, IBM. That pressure appears unlikely to moderate in the near term, as management revealed that revenue going forward from IBM would decline a further 20% from historical levels beginning in fourth quarter 2016, and a portion of the remaining business would experience “a slight reduction in profitability due to lower pricing.” In its IT Staffing reporting segment, CTG saw revenue fall 10.8% year over year, to $56.0 million.
Having completed a rebranding during the quarter in conjunction with its refocus towards leading-edge digital technologies, Mastech Digital (NYSE MKT: MHH) announced third-quarter 2016 revenue of $34.3 million. Though down about 1% year over year, this represented 2% growth on a sequential basis. Management said overall staffing demand among its clients was in-line with the previous quarter, but that a higher-than-anticipated level of assignment ends resulted in a 3% decline in its consultant base.
In its fiscal Q3, which ended July 31, Volt Information Sciences (NYSE: VISI) reported $313.4 million in revenue in its Staffing Services segment, a year-over-year decrease of 8.2%. However, management pointed out that the segment managed slight sequential top-line growth after adjusting for same billing days, which was cited as evidence that its turnaround plan is taking hold.
CDI (NYSE: CDI) was slated to report third-quarter results after this article was written, following the market close on Nov. 2.
The year-end earnings reports will be of particular interest, providing the first post-election evidence of the degree to which the oft-cited elevated business uncertainty has been directly related to the tumultuous presidential campaign season rather than concerns of macroeconomic deceleration.
