With macro conditions calling into question the direction of corporate spending, and the tone of year-end earnings reports sounding more cautious in their outlooks, all eyes have been on Q1 earnings for a fresh read on the state of IT staffing demand. Though several publicly traded firms continue to navigate company-specific challenges impeding their revenue growth, some firms’ Q1 results and commentaries looking further in 2016 suggest that the fundamental drivers of the IT staffing market remain intact.
On Assignment (NYSE: ASGN) reported no significant change in temporary staffing demand from its clients, and that the productivity of internal headcount they have added over the past two years is coming along as expected. Apex Systems, which includes most of the company’s IT staffing business, saw its top line grow 21.5% year-over-year to $318.8 million. All seven of the industry verticals Apex addresses were up double-digits from the same period in 2015, though higher growth from its large accounts relative to mid-market clients had a moderately deleterious impact on gross margin.
The Oxford core division, which excludes the CyberCoders direct hire and Life Sciences Europe businesses, benefitted from increased demand for electronic medical records implementation and upgrade projects, driving its revenue up 10.4% year-over-year to $114.0 million. Perhaps the most cautious tone in On Assignment’s release emerged when the discussion turned to CyberCoders, which reported 9.1% year-over-year growth. While still healthy in absolute terms, this marks a deceleration from recent quarters, which management attributed to customers’ reticence to add permanent headcount in a time of macroeconomic uncertainty.
While reiterating that “the overall demand environment remains strong,” Kforce (NASD: KFRC) management said that a few of its large clients continue to work through internal transactions that have led them to decrease use of staffing in recent quarters. Though its top-25 Tech Flex (temporary IT staffing) accounts produced year-over-year growth of about 7% on the whole in Q1, a few of those clients that had been prime contributors to revenue expansion during the past few years have reversed to become a drag. Tech Flex grew revenue by just 1.3% over 1Q15, to $211.1 million, and the company expects the year-over-year growth rate to moderate further in the current quarter due to more difficult prior-year comparisons, before accelerating again in the second half of 2016.
Facing difficult comparisons following the double-digit growth in 2015, Robert Half’s (NYSE: RHI) Technology division saw its year-over-year revenue growth rate slow to 6.2% in 1Q16, adjusted for same billing days and constant currency. This marked the fifth consecutive quarter of decelerating year-over-year growth for the division. On the conference call, management cited a lengthening of the sales cycle due to the combination of macro-induced caution on the part of clients, along with IT candidates who feel they have many options with current and prospective employers.
While many competitors have been adding recruiters and salespeople to better capture market demand, Volt Information Sciences (NYSE: VISI) has been reducing internal headcount in an effort to improve profitability as part of its ongoing restructuring efforts. Its Staffing Services segment generated $308.7 million in its fiscal 1Q16 (ended Jan. 31), a decrease of 14.5% from the same period in 2015.
Computer Task Group (NASD: CTG) saw revenue decline 8.0% from the prior-year period in its IT and Other Staffing segment, to $60.1 million. Though the company cited some traction in building its pipeline of new business, it simultaneously cautioned that there will be a lag in the revenue impact from contracts it hopes to win in the second half of this year, dampening expectations for growth in the remainder of 2016.
CDI (NYSE: CDI) is slated to report quarterly earnings today (May 5) after the markets close.
On balance, revenue growth for IT staffing firms in 1Q16 could be characterized as underwhelming. However, none of the reporting firms noted a material weakening of demand, and most project strengthening in the back half of 2016 after a challenging start to the year. Alongside the 10% median year-over-year IT staffing sales growth reported in our April monthly Pulse survey, which tends to be more representative of smaller staffing firms, we are encouraged that 2016 can be another solid—if not quite sizzling — year for the industry.
