Economic activity in the US has been fairly tepid through the first half of 2016, as year-over-year GDP growth in the second quarter came in at 1.1%, only a slight improvement from the disappointing 0.8% in the first quarter. So, considering the slowing-growth environment, how did publicly traded firms serving the IT staffing market fair in the second quarter?
On Assignment (NYSE: ASGN) reported that demand from its clients remains solid. Revenue in its Apex Systems division, which accounts for most of the firm’s IT staffing operations, rose to $453.7 million in 2Q16. This represents year-over-year growth of 16.5% on a pro forma basis, which includes the results of the acquired Creative Circle business in both the current and prior-year periods. Demand in six of the seven end markets that Apex serves was up by double-digit percentages in the quarter.
The company’s Oxford core division, which excludes the CyberCoders direct hire and Life Sciences Europe businesses, saw year-over-year revenue growth of 8.4% in the second quarter, reaching $119.0 million. Growth in key accounts along with increased demand for electronic medical record (EMR) upgrade and optimization projects were cited as tailwinds in the period. Permanent placement revenue fell 3.2% from the second quarter of 2015, with the decline driven by weaker demand from early-stage technology clients and a general lengthening of the hiring decision process by direct hire customers. Looking ahead to 3Q16, On Assignment projects company-wide year-over-year revenue growth of 8% to 10%.
Kforce (NASD: KFRC) said that some of its larger customers that had been a drag on demand for its Tech Flex (temporary IT staffing) business in recent quarters retuned to growth in 2Q16. This enabled the company to boost Tech Flex revenue by 3.9% from the preceding quarter, to $219.4 million, though the division was down 2.9% on a year-over-year basis. Management projected that the same pattern — revenue rising sequentially but declining from the same period last year — will repeat in the third quarter.
Robert Half’s (NYSE: RHI) Technology division has seen its top-line growth decelerate markedly in 2016, partially owing to tough year-over-year comparisons following double-digit increases in each quarter of last year. In the recent quarter, the unit’s revenue growth slowed to just 0.6% over 2Q15, adjusted for same billing days and constant currency, to $168.6 million. On the earnings call, management said that clients in its help desk/PC support staffing line appear to be growing more cautious. In the company’s other major IT staffing practice area, software development, growth constraints are mainly on the candidate supply side. Additionally, it was mentioned that the firm withdrew from one of its largest clients due to unfavorable pricing demands, which management estimated cost the division two to three percentage points of year-over-year growth in the quarter.
Revenue continues to decline at CTG (NASD: CTG), falling 6.0% year over year to $58.9 million, for its IT staffing division in 2Q16. The same major trends that have been blamed for the weakness in recent quarters were once again mentioned, namely softening demand from its largest customer along with diminished legacy EMR staffing activity. While CTG is concentrating on broadening its client base to reduce its dependence on IBM, the company signaled that the initiative will take more time to show results by trimming its revenue guidance for the remainder of 2016.
Volt Information Sciences (NYSE: VISI) remains focused on divesting non-core assets and taking other measures to streamline operations and reduce operating expenses. Though this has positively impacted the company’s operating margin, revenue growth continues to suffer as management’s focus is diverted from business development initiatives. In Volt’s fiscal 2Q16, which closed May 1, revenue in its Staffing Services unit fell 12.4% year over year to $317.2 million.
If there was a consistent theme across the 2Q16 earnings reports, it was that customers have become more cautious, with delayed project starts impacting staff augmentation deals and longer hiring decisions tempering direct hire growth. However, those firms that are navigating internal challenges notwithstanding, outlooks for the second half of the year were more positive than one might expect given the environment of increasing economic uncertainty.
