IT Staffing Report: Nov. 12, 2015

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3Q15 IT staffing earnings recap: Management makes the difference

Revenue trends in the third quarter of 2015 continue to exhibit marked divergence, ranging from year-over-year (y/y) growth in the double digits to declines of equivalent magnitude. As detailed below, while some firms have been well positioned to capitalize upon the healthy demand environment, others have been focused internally, consumed by the need to restructure and sharpen their focus on the more robust pockets of demand in the broad IT staffing market.

On Assignment’s (NYSE: ASGN) Apex Systems IT staffing division reported top-line growth of 14.4% on a y/y basis in 3Q15, to $311.6 million. This was more than twice the segment’s growth rate in 2Q15, and benefitted from double-digit percentage growth in six of the seven industry verticals the company serves, with only the government market declining y/y. Local midmarket accounts also grew at a double-digit rate, as the business has begun to benefit from the increasing productivity of the additional recruiting and sales headcount brought on in late 2014.

The Oxford core segment, which backs out the division’s CyberCoders permanent placement and Life Sciences Europe segments, saw its revenue grow to $105.7 million, up 12.2% y/y in the quarter. This extends the streak of sales growth for Oxford core, which the segment has realized both on a y/y and sequential basis through each of the first three quarters of 2015. Demand was driven by growth in the firm’s key customer accounts, including an uptick in electronic medical records implementations, upgrades and optimization projects.

The Tech Flex (IT temporary staffing) division at Kforce (NASD: KFRC), which contributes about two-thirds of the company’s total revenue, grew revenue by 6.6% y/y, to $226.4 million. This marks a deceleration from the 9.6% growth in Q2, though the company said its key performance indicators such as job orders remain healthy and blamed the slightly disappointing Q3 growth rate on “customer-specific issues, not the result of any changes in market demand.” End markets such as financial services, insurance, computer manufacturing and retail outperformed the segment’s overall growth rate.

In response to the supply constrained market for tech talent, Kforce’s internal hiring over the last two years had been more focused on recruiting than sales. In their latest earnings call, management expressed their belief that these additional recruiters could support an expanded sales force, and thus began to hire more account execs. While Tech Flex revenue is projected to increase y/y in Q4, they warned of the potential for another sequential deceleration in the rate of growth.

Robert Half (NYSE: RHI) reported $170.2 million in sales for its Robert Half Technology division, up 13.3% y/y despite a negative impact from currency values. This was the fifth consecutive quarter of double-digit growth for the IT staffing business unit, and though it showed some deceleration from the growth rate in the first two quarters of 2015, this is largely due to prior year revenue comparisons becoming more difficult. Bill rates for RHI’s overall staffing business were up 4.6% from 3Q14, rising more quickly than pay rates and thereby enabling some expansion of the bill-pay spread, with IT noted as a particularly strong market. As Chairman and CEO Max Messmer commented on the analyst call, “Technology remains the hottest area of staffing, both here and abroad. We are investing in Robert Half Technology to take advantage of this demand.”

While the new management team at Volt Information Sciences (NYSE MKT: VISI) expresses optimism regarding the potential of the turnaround plan that has been put in place, current operating results continue to suffer. The company’s Staffing Services revenue fell to $341.4 million in its fiscal Q3 (ended Aug. 2, 2015), a y/y decrease of 14.0%.  Operating income for the division fell from $9.2 million in 3Q14 to $5.9 million in 3Q15 on a non-GAAP basis, which disregards a $2.5 million one-time charge related to impairment and restructuring costs.

CDI’s (NYSE: CDI) revenue trend continues downward as it realigns to increase focus on higher-value services and away from staff augmentation. The top-line contribution from its Hi-Tech Professional Staffing Services segment declined by 14.4% y/y to $49.5 million, due primarily to lower demand from IBM, which represents about 70% of segment revenue. In August, CDI announced as part of its strategic refocus the acquisition of EdgeRock Technology Partners, a specialty IT staffing firm focused on providing consultants in the ERP software and business intelligence/data analytics fields. EdgeRock posted approximately $44M in revenue for the 12 months ended in August 2015, and has a historical gross margin in the 28-30% range.

IBM is likewise the largest client for CTG (NASD: CTG), though at a smaller proportion of 28% of the staffing firm’s total revenue. Though CTG reported its business with that customer weakening throughout Q3—a trend it expects to continue for the remainder of 2015—the company’s overall IT staffing revenue grew 2.4% y/y, to $63.0 million. The firm ended the quarter with roughly 3,900 contractors in the field, down 3% from the level at which it began 2015.

Though the rising tide is not lifting all boats, trends in the IT staffing market remain generally favorable.

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